Company Quick10K Filing
Quick10K
Prana Biotechnology
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$2.30 534 $1,228
20-F 2019-06-30 Annual: 2019-06-30
20-F 2018-06-30 Annual: 2018-06-30
20-F 2017-06-30 Annual: 2017-06-30
20-F 2016-06-30 Annual: 2016-06-30
AGN Allergan 52,442
BHC Bausch 7,569
RCKT Rocket Pharmaceuticals 585
ARDX Ardelyx 229
ACRS Aclaris 40
ARPO Aerpio Pharmaceuticals 28
SNNA Sienna Biopharmaceuticals 24
HTBX Heat Biologics 19
RGLS Regulus Therapeutics 13
RTTR Ritter 9
PRAN 2019-06-30
Item 17 ☐ Item 18 ☐
Part I
Item 1.Identity of Directors, Senior Management and Advisers
Item 2.Offer Statistics and Expected Timetable
Item 3.Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6.Directors, Senior Management and Employees
Item 7.Major Shareholders and Related Party Transactions
Item 8.Financial Information
Item 9.The Offer and Listing
Item 10.Additional Information
Item 11.Quantitative and Qualitative Disclosures About Market Risk
Item 12.Description of Securities Other Than Equity Securities
Part II
Item 13.Defaults, Dividend Arrearages and Delinquencies
Item 14.Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15.Controls and Procedures
Item 16.Reserved
Item 16A.Audit Committee Financial Expert
Item 16B.Code of Ethics
Item 16C.Principal Accountant Fees and Services
Item 16D.Exemptions From The Listing Standards for Audit Committees
Item 16E.Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F.Changes in Registrant's Certifying Accountant
Item 16G.Corporate Governance
Item 16H.Mine Safety Disclosure
Item 17.Financial Statements
Item 18.Financial Statements
Item 19.Exhibits
EX-8.1 f20f2019ex8-1_alterity.htm
EX-12.1 f20f2019ex12-1_alterity.htm
EX-12.2 f20f2019ex12-2_alterity.htm
EX-13.1 f20f2019ex13-1_alterity.htm
EX-13.2 f20f2019ex13-2_alterity.htm
EX-15.1 f20f2019ex15-1_alterity.htm

Prana Biotechnology Earnings 2019-06-30

PRAN 20F Annual Report

Balance SheetIncome StatementCash Flow

20-F 1 f20f2019_alteritytherape.htm ANNUAL REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 20-F

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended June 30, 2019

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report __________

 

Commission file number 000-49843

 

ALTERITY THERAPEUTICS LIMITED

(Exact name of Registrant as specified in its charter

and translation of Registrant’s name into English)

 

Australia

(Jurisdiction of incorporation or organization)

 

Level 3, 460 Bourke Street, Melbourne, VIC 3000, Australia

(Address of principal executive offices)

 

Geoffrey Kempler, Chief Executive Officer

Level 3, 460 Bourke Street, Melbourne, VIC 3000, Australia

+61 3 9349 4906 (phone) ; +61 3 9348 0377 (fax)

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol   Name of each exchange on which registered
American Depositary Shares, each representing sixty Ordinary Shares   ATHE   NASDAQ Capital Market

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

  

 

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

 

Ordinary Shares, as of June 30, 2019 ……………860,837,432

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yes ☐  No ☒

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

Yes ☐  No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes ☐  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer ☐ Accelerated filer ☐
  Emerging growth company ☐

Non-accelerated filer ☒

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP ☐   International Financial Reporting Standards as issued by the International Accounting Standards Board ☒   Other ☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

 

Item 17 ☐  Item 18 ☐

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ☐  No ☒

 

This Annual Report on Form 20-F is incorporated by reference into our Registration Statement on Form S-8 (File No. 333-228671) and our Registration Statements on Form F-3 (Files No. 333-220886 and 333-231417).

 

 

 

 

 

 

INTRODUCTION

 

Alterity Therapeutics Limited (formerly Prana Biotechnology Limited) was incorporated under the laws of the Commonwealth of Australia on November 11, 1997. Our mission is to develop therapeutic drugs designed to treat the underlying causes of degeneration of the brain as the aging process progresses, currently focusing on Alzheimer’s disease, Huntington disease, Parkinson’s disease and other movement disorders. Other potential applications for our therapies include certain cancers, age-related macular degeneration, Motor Neuron disease, Creutzfeldt-Jakob disease (the human variant of Mad Cow disease) and a variety of orphan neurodegenerative disorders.

 

The principal listing of our ordinary shares and listed options to purchase our ordinary shares is on the Australian Securities Exchange, or ASX. Since September 5, 2002, our American Depository Shares, or ADSs, have traded on the NASDAQ Capital Market under the symbol “PRAN.” On April 8, 2019, we changed our name to Alterity Therapeutics Limited and our ADSs have traded under the symbol “ATHE” since that date. The Bank of New York, acting as depositary, issues American Depository Receipts, or ADRs, each of which evidences an ADS, which in turn represents sixty of our ordinary shares. As used in this annual report, the terms “we,” “us,” “our” and “Alterity” mean Alterity Therapeutics Limited (formerly Prana Biotechnology Limited) and its subsidiaries, unless otherwise indicated.

 

We have not obtained or applied for trademark registrations. Any trademarks and trade names appearing in this annual report are owned by their respective holders.

 

Our consolidated financial statements appearing in this annual report are prepared in Australian dollars and in accordance with the International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. Our consolidated financial statements appearing in this annual report comply with IFRS.

 

In this annual report, all references to “U.S. dollars” or “U.S.$” are to the currency of the United States, and all references to “Australian dollars” or “A$” are to the currency of Australia.

 

Statements made in this annual report concerning the contents of any contract, agreement or other document are summaries of such contracts, agreements or documents and are not complete descriptions of all of their terms. If we filed any of these documents as an exhibit to this annual report or to any registration statement or annual report that we previously filed, you may read the document itself for a complete description of its terms.

 

Except for the historical information contained in this annual report, the statements contained in this annual report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995, as amended, with respect to our business, financial condition and results of operations. Such forward-looking statements reflect our current view with respect to future events and financial results. We urge you to consider that statements which use the terms “anticipate,” “believe,” “do not believe,” “expect,” “plan,” “intend,” “estimate,” and similar expressions are intended to identify forward-looking statements. We remind readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any future results, performance, levels of activity, or our achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to publicly release any update or revision to any forward-looking statements to reflect new information, future events or circumstances, or otherwise after the date hereof. We have attempted to identify significant uncertainties and other factors affecting forward-looking statements in the Risk Factors section that appears in Item 3.D. “Key Information-Risk Factors.

 

 

 

 

TABLE OF CONTENTS

 

        Page
PART I       1
ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS   1
ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE   1
ITEM 3.   KEY INFORMATION   1
A.   Selected Consolidated Financial Data   1
B.   Capitalization and Indebtedness   2
C.   Reasons for the Offer and Use of Proceeds   2
D.   Risk Factors   2
ITEM 4.   INFORMATION ON THE COMPANY   17
A.   History and Development of the Company   17
B.   Business Overview   18
C.   Organizational Structure   32
D.   Property, Plants and Equipment   32
ITEM 4A.   UNRESOLVED STAFF COMMENTS   33
ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS   33
A.   Operating Results   33
B.   Liquidity and Capital Resources   38
C.   Research and Development, Patents and Licenses   42
D.   Trend Information   42
E.   Off-Balance Sheet Arrangements   43
F.   Tabular Disclosure of Contractual Obligations   43
ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES   43
A.   Directors and Senior Management   43
B.   Compensation   46
C.   Board Practices   48
D.   Employees   51
E.   Share Ownership   51
ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS   55
A.   Major Shareholders   55
B.   Related Party Transactions   55
C.   Interests of Experts and Counsel   55
ITEM 8.   FINANCIAL INFORMATION   55
A.   Financial Statements and Other Financial Information   55
B.   Significant Changes   56
ITEM 9.   THE OFFER AND LISTING   56
A.   Offer and Listing Details   56
B.   Plan of Distribution   56
C.   Markets   56
D.   Selling Shareholders   56
E.   Dilution   56
F.   Expenses of the Issue   57
ITEM 10.   ADDITIONAL INFORMATION   57
A.   Share Capital   57
B.   Memorandum and Articles of Association   57
C.   Material Contracts   59
D.   Exchange Controls   59
E.   Taxation   60
F.   Dividends and Paying Agents   66
G.   Statement by Experts   66
H.   Documents on Display   67
I.   Subsidiary Information   67
ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   67
ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES   68

 

i

 

 

PART II       69
         
ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES   69
ITEM 14.   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS   69
ITEM 15.   CONTROLS AND PROCEDURES   69
ITEM 16.   RESERVED   70
ITEM 16A.   AUDIT COMMITTEE FINANCIAL EXPERT   70
ITEM 16B.   CODE OF ETHICS   70
ITEM 16C.   PRINCIPAL ACCOUNTANT FEES AND SERVICES   70
ITEM 16D.   EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES   71
ITEM 16E.   PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS   71
ITEM 16F.   CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT   71
ITEM 16G.   CORPORATE GOVERNANCE   71
ITEM 16H.   MINE SAFETY DISCLOSURE   71
ITEM 17.   FINANCIAL STATEMENTS   71
ITEM 18.   FINANCIAL STATEMENTS   72
ITEM 19.   EXHIBITS   72
SIGNATURES   74

 

ii

 

 

PART I

 

ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3.KEY INFORMATION

 

A.Selected Consolidated Financial Data

 

We prepare our consolidated financial statements in accordance with IFRS, as issued by IASB. Our consolidated financial statements appearing in this annual report comply with IFRS as issued by IASB.

 

The following table presents our selected consolidated financial data as of the dates and for each of the periods indicated. The following selected consolidated financial data as of June 30, 2019 and 2018 and for the years ended June 30, 2019, 2018 and 2017 have been derived from our audited consolidated financial statements and notes thereto included elsewhere in this annual report. The selected consolidated financial data as of June 30, 2017, 2016 and 2015 and for the years ended June 30, 2016 and 2015 have been derived from our audited consolidated financial statements and notes thereto which are not included in this annual report.

 

The selected consolidated financial data set forth below should be read in conjunction with and are qualified entirely by reference to Item 5. “Operating and Financial Review and Prospects” and our consolidated financial statements and notes thereto included elsewhere in this annual report.

 

Statement of Comprehensive Income:

 

   Year Ended June 30, 
   2019   2018   2017   2016   2015 
   (in A$, except loss per share and number of shares) 
Interest income   108,538    201,174    132,396    142,657    176,842 
Other income    4,951,167    3,125,775    3,022,673    4,753,697    6,317,438 
Research and development expenses    (12,983,185)   (6,698,016)   (5,700,339)   (9,585,371)   (12,298,167)
General and administration expenses    (4,308,352)   (4,341,058)   (3,968,630)   (3,610,551)   (4,506,122)
Intellectual property expenses    (322,097)   (224,580)   (241,892)   (241,954)   (257,299)
Other operating expenses    (132,965)   (58,172)   (126,071)   (45,276)   (39,210)
Other gains and losses    349,064    (270,860)   (660,213)   857,247    4,721,449 
Net loss    (12,337,830)   (8,265,737)   (7,542,076)   (7,729,551)   (5,885,069)
Loss per share in cents – basic and diluted    (2.00)   (1.55)   (1.41)   (1.45)   (1.17)
Weighted average number of ordinary shares outstanding - basic and diluted    615,772,236    533,891,470    533,891,470    533,891,470    502,714,982 

 

1

 

 

Balance Sheet Data

                    
   As of June 30, 
   2019   2018   2017   2016   2015 
   (in A$) 
Cash and cash equivalents    14,399,904    15,235,556    21,884,957    28,593,538    34,909,574 
Working capital    16,541,001    16,010,651    23,659,659    31,299,470    39,025,487 
Total assets   19,909,918    18,726,013    25,280,946    33,725,020    41,834,382 
Net assets    16,554,773    16,081,157    23,690,034    31,367,213    39,113,264 
Issued capital    156,632,636    143,910,328    144,018,006    146,879,214    146,895,714 
Share based payment reserves    1,158,975    1,753,954    2,320,480    9,363,181    9,363,181 
Accumulated deficit during development stage    (141,236,838)   (129,583,125)   (122,648,452)   (124,875,182)   (117,145,631)
Total equity    16,554,773    16,081,157    23,690,034    31,367,213    39,113,264 

 

B.Capitalization and Indebtedness

 

Not applicable.

 

C.Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D.Risk Factors

 

Investing in our American Depositary Shares involves a high degree of risk and uncertainty. You should carefully consider the risks and uncertainties described below before investing in our American Depositary Shares. Additional risks and uncertainties not presently known to us or that we believe to be immaterial may also adversely affect our business. If any of the following risks actually occurs, our business, prospects, financial condition and results of operations could be harmed. In that case, the daily price of our depositary shares could decline, and you could lose all or part of your investment.

 

Risks Related to Our Financial Condition

 

We have a history of significant operating losses since we began operations, we expect to continue to incur operating losses for the foreseeable future and may never achieve or maintain profitability.

 

We have not sufficiently advanced the development of any of our product candidates, to market or generate revenues from their commercial application. We have incurred losses in every period since we began operations in 1997 and reported net losses of A$12,337,830, A$8,265,737 and A$7,542,076 during the fiscal years ended June 30, 2019, 2018 and 2017 respectively. As of June 30, 2019, our accumulated deficit was A$141,236,838. We expect to continue to incur additional operating losses over at least the next several years as we expand our research and development and pre-clinical activities and commence clinical trials of our product candidates that includes PBT434 for Parkinsonian diseases, prospectively PBT2 for alternative indications and the development of other compounds.

 

Our actual cash requirements may vary materially from those now planned and will depend upon numerous factors, including:

 

the continued progress of our research and development programs;

 

the timing, scope, results and costs of nonclinical studies and clinical trials;

 

the cost, timing and outcome of regulatory submissions and approvals;

 

2

 

 

determinations as to the commercial potential of our product candidates;

 

our ability to successfully expand our contract manufacturing services;

 

our ability to establish and maintain collaborative arrangements; and

 

the status and timing of competitive developments.

 

If we fail to generate revenue and eventually become and remain profitable, or if we are unable to fund our continuing losses, our shareholders could lose all or part of their investments. We will need substantial additional funding to complete our clinical trials and to operate our business; such funding may not be available or, if it is available, such financing is likely to substantially dilute our existing shareholders.

 

We raised US$1,163,562 from the sale of our ordinary shares pursuant to our at-the-market offering facility in the year ended June 30, 2019 and subsequent to such date have raised an additional US$191,912 pursuant to this facility. We will need to secure additional financing in order to continue to meet our longer-term business objectives, including advancement of our research and development programs and we may also require additional funds to pursue regulatory clearances, defend our intellectual property rights, establish commercial scale manufacturing facilities, develop marketing and sales capabilities and fund operating expenses. We intend to seek such additional funding through public or private financings and/or through licensing of our assets or strategic alliances or other arrangements with corporate partners.

 

Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never achieve, we expect to finance our cash needs primarily through public or private equity offerings, debt financings or through strategic alliances.

 

We cannot be certain that additional funding will be available on acceptable terms or at all. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more of our clinical trials, collaborative research or development programs or future commercialization initiatives. In addition, any additional funding that we do obtain will dilute the ownership held by our existing security holders. The amount of this dilution may be substantially increased if the trading price of our shares are lower at the time of any financing. Regardless, the economic dilution to shareholders will be significant if our stock price does not increase significantly, or if the effective price of any sale is below the price paid by a particular shareholder. Any debt financing could involve substantial restrictions on activities and creditors could seek a pledge of some or all of our assets. We have not identified potential sources for the additional financing that we will require, and we do not have commitments from any third parties to provide any future financing. If we fail to obtain additional funding as needed, we may be forced to cease or scale back operations, and our results, financial condition and stock price would be adversely affected.

 

We are a development stage company whose pharmaceutical products are designed to treat degenerative diseases of the brain. We have not sufficiently advanced the development of any of our candidate products, to market or generate revenues from their commercial application. Our current or any future product candidates, if successfully developed, may not generate sufficient or sustainable revenues to enable us to be profitable.

 

Risks Related to Our Business

 

We are a development stage company of pharmaceutical products and our success is uncertain.

 

We are a development stage company whose pharmaceutical products are designed to treat degenerative diseases of the brain. We have not sufficiently advanced the development of any of our candidate products, to market or generate revenues from their commercial application.  Our current or any future product candidates, if successfully developed, may not generate sufficient or sustainable revenues to enable us to be profitable.

 

We are faced with uncertainties related to our research.

 

Our research programs are based on scientific hypotheses and experimental approaches that may not lead to desired results. In addition, the timeframe for obtaining proof of principle and other results may be considerably longer than originally anticipated, or may not be possible given time, resource, financial, strategic and collaborator scientific constraints. Success in one stage of testing is not necessarily an indication that the particular program will succeed in later stages of testing and development. It is not possible to predict whether any of the candidate products designed for these programs will prove to be safe, effective, and suitable for human use. Each candidate product will require additional research and development, scale-up, formulation and extensive clinical testing in humans. Unsatisfactory results obtained from a particular study relating to a program may cause us to abandon our commitment to that program or product candidate being tested. The discovery of toxicities, lack of sufficient efficacy, unacceptable pharmacology, inability to increase scale of manufacture, market attractiveness, regulatory hurdles, competition, as well as other factors, may make our targets, lead therapies or product candidates unattractive for further development or unsuitable for human use, and we may abandon our commitment to that program, target, or product candidate.

 

3

 

 

Clinical trials are expensive and time consuming, and their outcome is uncertain.

 

In order to obtain approvals to market a new drug product, we or our potential partners must demonstrate proof of safety and efficacy in humans. To meet these requirements, we or our potential partners will have to conduct extensive non-clinical testing and “adequate and well-controlled” clinical trials. Conducting clinical trials is a lengthy, time-consuming and expensive process. The length of time may vary substantially according to the type, complexity, novelty and intended use of the product candidate, and often can be several years or more per trial. Even if we obtain positive results from such non-clinical or initial clinical trials, we may not achieve the same success in future trials. Clinical trials may not demonstrate adequate safety or sufficient effectiveness to obtain the requisite regulatory approvals for product candidates employing our technology. The failure of clinical trials to demonstrate safety and efficacy for a particular desired indication could harm development of that product candidate for other indications as well as other product candidates.

 

We expect to commence new clinical trials from time to time as our product development work continues. Any change in, or termination of, our clinical trials could materially harm our business, financial condition and results of operations.

 

We may experience delays in our clinical trials that could adversely affect our business and operations.

 

We do not know whether planned clinical trials will begin on time or whether we will complete any of our clinical trials on schedule or at all. Our ability to commence and complete clinical trials may be delayed by many factors, including:

 

  government or regulatory delays, including delays in obtaining approvals from applicable hospital ethics committees and internal review boards;
     
  slower than expected patient enrollment;
     
  our inability to manufacture sufficient quantities of our new proprietary compound or our other product candidates or matching controls;
     
  unforeseen safety issues; or
     
  lack of efficacy or unacceptable toxicity during the clinical trials or non-clinical studies.

 

Patient enrollment is a function of, among other things, the nature of the clinical trial protocol, the existence of competing protocols, the size and longevity of the target patient population, and the availability of patients who comply with the eligibility criteria for the clinical trial. Delays in planned patient enrollment may result in increased costs, delays or termination of the clinical trials. Moreover, we rely on third parties such as clinical research organizations to assist us in clinical trial management functions including; clinical trial database management, statistical analyses, site management and monitoring. Any failure by these third parties to perform under their agreements with us may cause the trials to be delayed or result in a failure to complete the trials.

 

If we experience delays in testing or approvals or if we need to perform more, larger or more complex clinical trials than planned, our product development costs may increase. Significant delays could adversely affect the commercial prospects of our product candidates and our business, financial condition and results of operations.

 

We rely on research institutions to conduct our clinical trials and we may not be able to secure and maintain research institutions to conduct our future trials.

 

We rely on research institutions to conduct our clinical trials.  Our reliance upon research institutions, including public and private hospitals and clinics, provides us with less control over the timing and cost of clinical trials, clinical study management personnel and the ability to recruit subjects. If we are unable to reach agreements with suitable research institutions on acceptable terms, or if any resulting agreement is terminated, we may be unable to secure, maintain or quickly replace the research institution with another qualified institution on acceptable terms.

 

4

 

 

We may not be able to complete the development of our products candidates or develop other pharmaceutical products.

 

We may not be able to progress with the development of our current or any future pharmaceutical product candidates to a stage that will attract a suitable collaborative partner for the development of any current or future pharmaceutical product candidates.  The projects initially specified in connection with any such collaboration and any associated funding may change or be discontinued as a result of changing interests of either the collaborator or us, and any such change may change the budget for the projects under the collaboration.  Additionally, our research may not lead to the discovery of additional product candidates, and any of our current and future product candidates may not be successfully developed, prove to be safe and efficacious in clinical trials, meet applicable regulatory standards and receive regulatory approval, be capable of being produced in commercial quantities at reasonable costs, or be successfully or profitably marketed, either by us or a collaborative partner.  The products we develop may not be able to penetrate the potential market for a particular therapy or indication or gain market acceptance among health care providers, patients and third-party payers.  We cannot predict if or when the development of our current product candidates or any future product candidates will be completed or commercialized, whether funded by us, as part of a collaboration or through a grant.

 

We may need to prioritize the development of our most promising candidates at the expense of the development of other products.

 

We may need to prioritize the allocation of development resources and/or funds towards what we believe to be our most promising candidate product or products.  The nature of the drug development process is such that there is a constant availability of new information and data which could positively or adversely affect a product in development.  We cannot predict how such new information and data may impact in the future the prioritization of the development of our current or future product candidates or that any of our products, regardless of its development stage or the investment of time and funds in its development, will continue to be funded or developed.

 

Our research and development efforts will be seriously jeopardized if we are unable to retain key personnel and cultivate key academic and scientific collaborations.

 

Our future success depends to a large extent on the continued services of our senior management and key scientific personnel.  We have entered into employment or consultancy agreements with these individuals.  The loss of their services could negatively affect our business.  Competition among biotechnology and pharmaceutical companies for qualified employees is intense, including competition from larger companies with greater resources, and we may not be able to continue to attract and retain qualified management, technical and scientific personnel critical to our success.  Our success is highly dependent on our ability to develop and maintain important relationships with leading academic institutions and scientists who conduct research at our request or assist us in formulating our research and development strategies.  These academic and scientific collaborators are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us.  In addition, these collaborators may have arrangements with other companies to assist such companies in developing technologies that may prove competitive to ours.

 

If we are unable to successfully keep pace with technological change or with the advances of our competitors, our technology and products may become obsolete or non-competitive.

 

The biotechnology and pharmaceutical industries are subject to rapid and significant technological change.  Our competitors are numerous and include major pharmaceutical companies, biotechnology firms, universities and other research institutions.  These competitors may develop technologies and products that are more effective than any that we are developing, or which would render our technology and products obsolete or non-competitive.  Many of these competitors have greater financial and technical resources and manufacturing and marketing capabilities than we do.  In addition, many of our competitors have much more experience than we do in pre-clinical testing and human clinical trials of new or improved drugs, as well as in obtaining regulatory approvals.

 

We know that competitors are developing or manufacturing various technologies or products for the treatment of diseases that we have targeted for product development.  Some of these competitive products use therapeutic approaches that compete directly with our product candidates.  Our ability to further develop our products may be adversely affected if any of our competitors were to succeed in obtaining regulatory approval for their competitive products sooner than us.

 

5

 

 

Acceptance of our products in the marketplace is uncertain, and failure to achieve market acceptance will negatively impact our business and operations.

 

Our current or future candidate products may not achieve market acceptance even if they are approved by regulatory authorities. The degree of market acceptance of such products will depend on a number of factors, including:

 

the receipt and timing of regulatory approvals for the uses that we are studying;

 

the establishment and demonstration to the medical community of the safety, clinical efficacy or cost-effectiveness of our product candidates and their potential advantages over existing therapeutics and technologies; and

 

the pricing and reimbursement policies of governments and third-party payors.

 

Physicians, patients, payors or the medical community in general may be unwilling to accept, use or recommend any of our products.

 

We have limited large scale manufacturing experience with our product candidates.  Delays in manufacturing sufficient quantities of such materials to the required standards for pre-clinical and clinical trials may negatively impact our business and operations.

 

We lack the resources to manufacture any of our product candidates on a clinical or commercial scale and do not currently have, nor do we plan to acquire the infrastructure or capability internally to manufacture our clinical drug supplies for use in the conduct of our clinical trials. We rely on collaborators and/or third parties for development, scale-up, formulation, optimization, management of clinical trial and commercial scale manufacturing and commercialization. There are no assurances we can scale-up, formulate or manufacture any product candidate in sufficient quantities with acceptable specifications for the conduct of our clinical trials or for the regulatory agencies to grant approval of such product candidate. We have not yet commercialized any products and have no commercial manufacturing experience. To be successful, our products must be properly formulated, scalable, stable and safely manufactured in clinical trial and commercial quantities in compliance with good manufacturing practices (GMP) and other regulatory requirements and at acceptable costs. Should any of our suppliers or our collaborators be unable to supply or be delayed in supplying us with sufficient supplies, no assurance can be given that we will be able to find alternative means of supply in a short period of time. Should such parties’ operations suffer a material adverse event, the manufacturing of our products would also be adversely affected. Furthermore, key raw materials could become scarce or unavailable. We may not be able to meet specifications previously established for product candidates during scale-up and manufacturing.

 

There may be a limited number of third parties who can manufacture our products. Our reliance on third parties to manufacture our product candidates will expose us and our partners to risks including the following, any of which could delay or prevent the commercialization of our products, result in higher costs, or deprive us of potential product revenue:

 

Contract manufacturers can encounter difficulties in achieving the scale-up, optimization, formulation, or volume production of a compound as well as maintaining quality control with appropriate quality assurance. They may also experience shortages of qualified personnel. Contract manufacturers are required to undergo a satisfactory GMP inspection prior to regulatory approval and are obliged to operate in accordance with the U.S. Food and Drug Administration, or FDA , International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use ("ICH"), European and other nationally mandated GMP regulations and/or guidelines governing manufacturing processes, stability testing, record keeping and quality standards. A failure of these contract manufacturers to follow GMP and to document their adherence to such practices or failure of an inspection by a regulatory agency may lead to significant delays in the availability of our product candidate materials for clinical study, leading to delays in our trials.

 

For each of our current product candidates we will initially rely on a limited number of contract manufacturers. Changing these or identifying future manufacturers may be difficult. Changing manufacturers requires re-validation of the manufacturing processes and procedures in accordance with FDA, ICH, European and other mandated GMP regulations and/or guidelines. Such re-validation may be costly and time-consuming. It may be difficult or impossible for us to quickly find replacement manufacturers on acceptable terms, if at all.

 

Our contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to produce, store and distribute our products successfully.

 

6

 

 

The failure to establish sales, marketing and distribution capability would materially impair our ability to successfully market and sell our pharmaceutical products.

 

We currently have no experience in marketing, sales or distribution of pharmaceutical products.  If we develop any commercially marketable pharmaceutical products and decide to perform our own sales and marketing activities, we will require additional management, will need to hire sales and marketing personnel and will require additional capital.  Qualified personnel may not be available in adequate numbers or at a reasonable cost.  Further, our sales staff may not achieve success in their marketing efforts.  Alternatively, we may be required to enter into marketing arrangements with other parties who have established appropriate marketing, sales and distribution capabilities.  We may not be able to enter into marketing arrangements with any marketing partner, or if such arrangements are established, our marketing partners may not be able to commercialize our products successfully.  Other companies offering similar or substitute products may have well-established and well-funded marketing and sales operations in place that will allow them to market their products more successfully.  Failure to establish sufficient marketing capabilities would materially impair our ability to successfully market and sell our pharmaceutical products.

 

If healthcare insurers and other organizations do not pay for our products, or impose limits on reimbursement, our future business may suffer.

 

The drugs we hope to develop may be rejected by the marketplace due to many factors, including cost.  The continuing efforts of governments, insurance companies, health maintenance organizations and other payors of healthcare costs to contain or reduce healthcare costs may affect our future revenues and profitability and those of our potential customers, suppliers and collaborative partners, as well as the availability of capital.  In Australia and certain foreign markets, the pricing or profitability of prescription pharmaceuticals is already subject to government control.  We expect initiatives for similar government control at both the state and federal level to continue in the United States and elsewhere.  The adoption of any such legislative or regulatory proposals could adversely affect our business and prospects.

 

Our ability to commercially exploit our products successfully will depend in part on the extent to which reimbursement for the cost of our products and related treatment will be available from government health administration authorities, private health coverage insurers and other organizations.  Third-party payors, such as government and private health insurers, are increasingly challenging the price of medical products and services.  Uncertainty exists as to the reimbursement status of newly approved health care products and in foreign markets, including the United States. If third-party coverage is not available to patients for any of the products we develop, alone or with collaborators, the market acceptance of these products may be reduced, which may adversely affect our future revenues and profitability.  In addition, cost containment legislation and reductions in government insurance programs may result in lower prices for our products and could materially adversely affect our ability to operate profitably.

 

We may be exposed to product liability claims, which could harm our business.

 

The testing, marketing and sale of human health care products also entails an inherent risk of product liability.  We may incur substantial liabilities or be required to limit development or commercialization of our candidate products if we cannot successfully defend ourselves against product liability claims.  We have historically obtained no fault compensation insurance for our clinical trials and intend to obtain similar coverage for future clinical trials. Such coverage may not be available in the future on acceptable terms, or at all.  This may result in our inability to pursue further clinical trials or to obtain adequate protection in the event of a successful claim.  We may not be able to obtain product liability insurance in the event of the commercialization of a candidate product or such insurance may not be available on commercially reasonable terms.  Even if we have adequate insurance coverage, product liability claims or recalls could result in negative publicity or force us to devote significant time, attention and financial resources to those matters.

 

7

 

 

Breaches of network or information technology security, natural disasters or terrorist attacks could have an adverse effect on our business.

 

Cyber-attacks or other breaches of network or information technology (IT) security, natural disasters, terrorist acts or acts of war may cause equipment failures or disrupt our research and development operations. In particular, both unsuccessful and successful cyber-attacks on companies have increased in frequency, scope and potential harm in recent years. Such an event may result in our inability, or the inability of our partners, to operate the research and development facilities, which even if the event is for a limited period of time, may result in significant expenses and/or significant damage to our experiments and trials. While we maintain insurance coverage for some of these events, the potential liabilities associated with these events could exceed the insurance coverage we maintain. In addition, a failure to protect employee confidential data against breaches of network or IT security could result in damage to our reputation. Any of these occurrences could adversely affect our results of operations and financial condition.

 

We have been subject, and will likely continue to be subject, to attempts to breach the security of our networks and IT infrastructure through cyber-attack, malware, computer viruses and other means of unauthorized access. However, to date, we have not been subject to cyber-attacks or other cyber incidents which, individually or in the aggregate, resulted in a material impact to our operations or financial condition.

 

We expect to expand our drug development, regulatory and business development capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

 

We expect to experience significant growth in the number of our employees and consultants and the scope of our operations, particularly in the areas of drug development, regulatory affairs and business development. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations, and have a materially adverse effect on our business.

 

Risks Related to Government Regulation

 

If we do not obtain the necessary governmental approvals, we will be unable to commercialize our pharmaceutical products.

 

Our ongoing research and development activities are, and the production and marketing of our pharmaceutical product candidates derived from such activities will be, subject to regulation by numerous international regulatory authorities. Prior to marketing, any therapeutic product developed must undergo rigorous pre-clinical testing and clinical trials and, to the extent that any of our pharmaceutical products under development are marketed abroad, by the relevant international regulatory authorities. For example, in Australia, principally the Therapeutics Goods Administration, or TGA; the Food and Drug Administration, or FDA, in the United States; the Medicines and Healthcare products Regulatory Agency, or MHRA, in the United Kingdom; the Medical Products Agency, or MPA, in Sweden; and the European Medicines Agency, or EMA. These processes can take many years and require the expenditure of substantial resources. Governmental authorities may not grant regulatory approval due to matters arising from pre-clinical animal toxicology, safety pharmacology, drug formulation and purity, insufficient efficacy, clinical side effects or patient risk profiles, or medical contraindications.

 

Failure or delay in obtaining regulatory approvals would adversely affect the development and commercialization of our pharmaceutical product candidates. We may not be able to obtain the clearances and approvals necessary for clinical testing or for manufacturing and marketing our pharmaceutical product candidates.

 

Even if regulatory authorities approve any of our product candidates, the manufacture, labeling, storage, recordkeeping, reporting, distribution, advertising, promotion, marketing, sale, import and export of these drugs will be subject to strict and ongoing regulation. If we, our partners, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may suspend any ongoing clinical trials; issue warning letters or untitled letters; suspend or withdraw regulatory approval; refuse to approve pending applications or supplements to applications; suspend or impose restrictions on operations; seize or detain products, prohibit the export or import of products, or require us to initiate a product recall; seek other monetary or injunctive remedies; or impose civil or criminal penalties.

 

We will not be able to commercialize any current or future product candidates if we fail to adequately demonstrate their safety, efficacy and superiority over existing therapies.

 

Before obtaining regulatory approvals for the commercial sale of any of our pharmaceutical products, we must demonstrate through pre-clinical testing and clinical studies that our product candidates are safe and effective for use in humans for each target indication. Results from early clinical trials may not be predictive of results obtained in large-scale, later-stage clinical testing.  Even though a candidate drug product shows promising results in clinical trials, regulatory authorities may not grant the necessary approvals without sufficient safety and efficacy data.

 

8

 

 

We may not be able to undertake further clinical trials of our current and future product candidates as therapies for Alzheimer’s disease, Huntington disease, Parkinsonian diseases or other indications or to demonstrate the safety and efficacy or superiority of any of these product candidates over existing therapies or other therapies under development, or enter into any collaborative arrangement to commercialize our current or future product candidates on terms acceptable to us, or at all.  Clinical trial results that show insufficient safety and efficacy could adversely affect our business, financial condition and results of operations.

 

Positive results in previous clinical trials of product candidates may not be replicated in future clinical trials, which could result in development delays or a failure to obtain marketing approval.

 

Positive results in previous clinical trials of a product candidate may not be predictive of similar results in future clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in late-stage clinical trials even after achieving promising results in early-stage development. Accordingly, the results from the completed pre-clinical studies and clinical trials for our product candidates may not be predictive of the results we may obtain in later stage trials. Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials. Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in pre-clinical studies and clinical trials have nonetheless failed to obtain FDA or EMA approval for their products.

 

Even if approved, any product candidates that we or our subsidiaries may develop and market may be later withdrawn from the market or subject to promotional limitations.

 

We may not be able to obtain the labeling claims necessary or desirable for the promotion of our product candidates if approved. We may also be required to undertake post-marketing clinical trials. If the results of such post-marketing studies are not satisfactory or if adverse events or other safety issues arise after approval, the FDA or a comparable regulatory agency in another country may withdraw marketing authorization or may condition continued marketing on commitments from us or our subsidiaries that may be expensive or time consuming to complete. In addition, if we or others identify adverse side effects after any of our products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and reformulation of our or our subsidiaries’ products, additional clinical trials, changes in labeling of our or our subsidiaries’ products and additional marketing applications may be required. Any reformulation or labeling changes may limit the marketability of such products if approved.

 

Healthcare reform measures and other statutory or regulatory changes could adversely affect our business.

 

In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could impact our business. For example, the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the “ACA”), enacted in March 2010, substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. With regard to pharmaceutical products, among other things, the ACA is expected to expand and increase industry rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare D program.

 

If we fail to comply with our reporting and payment obligations under the Medicaid program or other governmental pricing programs, we could be subject to additional reimbursement requirements, penalties, sanctions and fines which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

 

Pricing and rebate calculations vary among products and programs. The calculations are complex and will often be subject to interpretation by us, governmental or regulatory agencies and the courts. If we become aware that our reporting of pricing data for a prior quarter was incorrect, we will be obligated to resubmit the corrected data. For the Medicaid drug rebate program, corrected data must be submitted for a period not to exceed twelve quarters from the quarter in which the data originally were due. Such restatements and recalculations increase our costs for complying with the laws and regulations governing the Medicaid drug rebate program and other governmental pricing programs.

 

We may be liable for errors associated with our submission of pricing data. If we are found to have knowingly submitted false pricing data to the Medicaid program, we may be liable for civil monetary penalties in the amount of up to $100,000 per item of false information. Our failure to submit pricing data to the Medicaid program on a timely basis could result in a civil monetary penalty of $10,000 per day for each day the information is late. Such failure also could be grounds to terminate our Medicaid drug rebate agreement, which is the agreement under which we might participate in the Medicaid drug rebate program. In the event that our rebate agreement is terminated, federal payments may not be available under Medicaid for our covered outpatient drugs. We cannot assure you that our submissions will not be found to be incomplete or incorrect.

 

9

 

 

If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may be directly or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations.

 

Recent health care reform legislation has strengthened these laws. For example, the Health Care Reform Law, among other things, amends the intent requirement of the U.S. Anti-Kickback Statute and criminal health care fraud statutes; a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Health Care Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the U.S. Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the U.S. False Claims Act. Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a false claim paid.

 

Over the past few years, pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as: allegedly providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicare or Medicaid for non-covered, off-label uses; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates. Most states also have statutes or regulations similar to the U.S. Anti-Kickback Statute and the U.S. False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include substantial civil monetary penalties, exclusion of a manufacturer's products from reimbursement under government programs, substantial criminal fines and imprisonment.

 

The pharmaceutical and biotechnology industries are subject to extensive regulation, and from time to time legislative bodies and governmental agencies consider changes to such regulations that could have significant impact on industry participants. For example, in light of certain highly-publicized safety issues regarding certain drugs that had received marketing approval, the U.S. Congress has considered various proposals regarding drug safety, including some which would require additional safety studies and monitoring and could make drug development more costly. The implementation of cost containment measures or other healthcare system reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products. Such reforms could have an adverse effect on anticipated revenues from product candidates that impact we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates. In addition, it is possible that there will be further legislation or regulation that could harm our business, financial condition and several results of operations.

 

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act.

 

Our business operations may be subject to anti-corruption laws and regulations, including restrictions imposed by the U.S. Foreign Corrupt Practices Act (the “FCPA”). The FCPA and similar anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. We cannot provide assurance that our internal controls and procedures will always protect us from criminal acts committed by our employees or third parties with whom we work. If we are found to be liable for violations of the FCPA or similar anti-corruption laws in international jurisdictions, either due to our own acts or out of inadvertence, or due to the acts or inadvertence of others, we could suffer from criminal or civil penalties which could have a material and adverse effect on our results of operations, financial condition and cash flows.

 

Risks Related to Intellectual Property

 

Our success depends upon our ability to protect our intellectual property and our proprietary technology, to operate without infringing the proprietary rights of third parties and to obtain marketing exclusivity for our products and technologies.

 

Any future success will depend in large part on whether we can:

 

obtain and maintain patents to protect our own product candidates and technologies;

 

obtain orphan designation for our product candidates and technologies;

 

obtain licenses to the patented technologies of third parties;

 

operate without infringing on the proprietary rights of third parties; and

 

protect our trade secrets, know-how and other confidential information.

 

10

 

 

Patent matters in biotechnology are highly uncertain and involve complex legal and factual questions.  Accordingly, the availability and breadth of claims allowed in biotechnology and pharmaceutical patents cannot be predicted.  Any of the pending or future patent applications filed by us or on our behalf may not be approved, we may not develop additional proprietary products or processes that are patentable, or we may not be able to license any other patentable products or processes.

 

Our products may be eligible for orphan designation for particular therapeutic indications that are of relatively low prevalence and for which there is no effective treatment. Orphan drug designation affords market exclusivity post marketing authorization for a product for a specified therapeutic utility. The period of orphan protection is dependent on jurisdiction, for example, seven years in the United States and ten years in Europe. The opportunity to gain orphan drug designation depends on a variety of requirements specific to each marketing jurisdiction and can include; a showing of improved benefit relative to marketed products, that the mechanism of action of the product would provide plausible benefit and the nature of the unmet medical need within a therapeutic indication. It is uncertain if our products will be able to obtain orphan drug designation for the appropriate indications and in the jurisdictions sought.

 

There is a risk that the U.S. Congress, for example, could amend laws to significantly shorten the exclusivity period. Once any regulatory period of exclusivity expires, depending on the status of our patent coverage and the nature of the product, we may not be able to prevent others from marketing products that are biosimilar to or interchangeable with our products, which would materially adversely affect us.

 

Our commercial success will also depend, in part, on our ability to avoid infringement of patents issued to others.  If a court determines that we were infringing any third-party patents, we could be required to pay damages, alter our products or processes, obtain licenses or cease certain activities.  Licenses required under patents held by third parties may not be made available on terms acceptable to us or at all.  To the extent that we are unable to obtain such licenses, we could be foreclosed from the development, export, manufacture or commercialization of the product requiring such license or encounter delays in product introductions while we attempt to design around such patents, and any of these circumstances could adversely affect our business, financial condition and results of operations.

 

We may have to resort to litigation to enforce any patents issued or licensed to us or to determine the scope and validity of third-party proprietary rights.  We may have to defend the validity of our patents in order to protect or enforce our rights against a third party.  Third parties may in the future assert against us infringement claims or claims that we have infringed a patent, copyright, trademark or other proprietary right belonging to them.  Any infringement claim, even if not meritorious, could result in the expenditure of significant financial and managerial resources and could negatively affect our profitability.  While defending our patents, the scope of the claim may be reduced in breadth and inventorship of the claimed subject matter, and proprietary interests in the claimed subject matter may be altered or reduced. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Any such litigation, regardless of outcome, could be expensive and time consuming, and adverse determinations in any such proceedings could prevent us from developing, manufacturing or commercializing our products and could adversely affect our business, financial condition and results of operations.

 

The patents for our product candidates have varying expiration dates and, if these patents expire, we may be subject to increased competition and we may not be able to recover our development costs or market any of our approved products profitably. In some of the larger potential market territories, such as the United States and Europe, patent term extension or restoration may be available to compensate for time taken during aspects of the product’s development and regulatory review or by procedural delays before the relevant patent office. However, such an extension may not be granted, or if granted, the applicable time period or the scope of patent protection afforded during any extension period may not be sufficient. In addition, even though some regulatory authorities may provide some other exclusivity for a product under their own laws and regulations, we may not be able to qualify the product or obtain the exclusive time period. If we are unable to obtain patent term extension/restoration or some other exclusivity, we could be subject to increased competition and our opportunity to establish or maintain product revenue could be substantially reduced or eliminated. Furthermore, we may not have sufficient time to recover our development costs prior to the expiration of our U.S. and non-U.S. patents.

 

11

 

 

We may face difficulties in certain jurisdictions in protecting our intellectual property rights, which may diminish the value of our intellectual property rights in those jurisdictions.

 

The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the United States and the European Union, and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. If we or our collaboration partners encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished and we may face additional competition from others in those jurisdictions.

 

Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors is forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired and our business, financial condition and results of operations may be adversely affected.

 

Intellectual property rights do not address all potential threats to our competitive advantage.

 

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

 

Others may be able to make products that are similar to ours but that are not covered by the claims of the patents that we own.

 

Others may independently develop similar or alternative technologies or otherwise circumvent any of our technologies without infringing our intellectual property rights.

 

We or any of our collaboration partners might not have been the first to conceive and reduce to practice the inventions covered by the patents or patent applications that we own, license or will own or license.

 

We or any of our collaboration partners might not have been the first to file patent applications covering certain of the patents or patent applications that we or they own or have obtained a license, or will own or will have obtained a license.

 

It is possible that our pending patent applications will not lead to issued patents.

 

Issued patents that we own may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.

 

Our competitors might conduct research and development activities in countries where we do not have patent rights, or in countries where research and development safe harbor laws exist, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets.

 

The patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business.

 

Compulsory licensing provisions of certain governments to patented technologies that are deemed necessary for the government to access.

 

Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our products or product candidates.

 

As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involves both technological and legal complexity. Therefore, obtaining and enforcing pharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, the America Invents Act was recently enacted in the United States, resulting in significant changes to the U.S. patent system. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the U.S. Patent and Trademark Office, or USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. Similarly, the complexity and uncertainty of European patent laws has also increased in recent years. In addition, the European patent system is relatively stringent with regard to the type of amendments that are allowed during prosecution. These changes could limit our ability to obtain new patents in the future that may be important for our business.

 

12

 

 

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and protect other proprietary information.

 

We consider proprietary trade secrets and/or confidential know-how and unpatented know-how to be important to our business. We may rely on trade secrets and/or confidential know-how to protect our technology, especially where patent protection is believed by us to be of limited value. However, trade secrets and/or confidential know-how can be difficult to maintain as confidential.

 

To protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, contractors and advisors to enter into confidentiality agreements with us. However, current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third-party obtained illegally and is using trade secrets and/or confidential know-how is expensive, time consuming and unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction.

 

Failure to obtain or maintain trade secrets and/or confidential know-how trade protection could adversely affect our competitive position. Moreover, our competitors may independently develop substantially equivalent proprietary information and may even apply for patent protection in respect of the same. If successful in obtaining such patent protection, our competitors could limit our use of our trade secrets and/or confidential know-how.

 

Risks Related to Our Compliance with Sarbanes-Oxley

 

We may fail to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, which could adversely affect our operating results, investor confidence in our reported financial information, and the market price of our ordinary shares and ADSs.

 

The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors.  To comply with this statute, we are required to document and test our internal control over financial reporting. Our efforts to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, governing internal control and procedures for financial reporting, have resulted in increased general and administrative expenses and a diversion of management time and attention, and we expect these efforts to require the continued commitment of significant resources.  We may identify material weaknesses or significant deficiencies in our assessments of our internal control over financial reporting.  Failure to maintain effective internal control over financial reporting could result in investigations or sanctions by regulatory authorities and could adversely affect our operating results, investor confidence in our reported financial information, and the market price of our ordinary shares and ADSs. Additionally, our independent registered public accounting firm has not performed an evaluation of our internal control over financial reporting and consequently additional material weaknesses may be identified.

 

Material weaknesses in our disclosure controls and procedures could negatively affect shareholder and customer confidence.

 

Under Sarbanes-Oxley, we are required to assess the effectiveness of our disclosure controls and procedures (as defined in Sarbanes-Oxley) on an annual basis. If we were to conclude that our disclosure controls and procedures were ineffective, shareholder and customer confidence could be negatively affected, which could have a material adverse impact on the market price of our ADSs.

 

Risks Related to Our Securities

 

Life Biosciences LLC (“ Life Biosciences”) owns 31.35% of the outstanding ordinary shares of our company and has the ability to increase its ownership interest in our company to 57.81 %. This concentration of ownership gives Life Biosciences significant influence over our management and affairs and may deter a change in control or other transaction that may be favorable to our shareholders.

 

Life Biosciences owns 269,905,533 ordinary shares and Warrants to purchase an additional 539,811,066 ordinary shares. If exercised in full, would own 57.81% of our company. This concentration of ownership gives Life Biosciences significant influence over our management and affairs and may deter a change in control or other transaction that may be favorable to our shareholders. Life Biosciences also has the right until December 19, 2019, but has no obligation, to participate in future capital raisings to maintain its percentage ownership in our company, on the same terms of the April 5, 2019 placement. Because of its ownership interest, including the appointment of two directors to our board of directors, and the right to appoint a third director so long as it holds 20% of our issued ordinary shares, it is able to influence the outcome of all corporate actions requiring approval of our shareholders, including the election of directors and approval of significant corporate transactions, which may result in corporate action with which other shareholders do not agree. If Life Biosciences votes in favor of the foregoing actions, it will have sufficient voting power to approve such actions and no other shareholder approvals will be required. If a third director is appointed and a current director resigns, as proposed, half of the Board members will be directors nominated by Life Biosciences.

 

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Life Biosciences has therefore significant influence over our management and affairs and control over matters requiring shareholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or our assets, for the foreseeable future. This concentration of ownership may also cause, delay, deter or prevent a change in control, and may make some transactions more difficult or impossible to complete without the support of Life Biosciences, regardless of the impact of such transactions on our other shareholders. The interests of Life Biosciences may differ from the interests of other shareholders and thus result in corporate decisions that are disadvantageous to other shareholders.

 

Two of our directors resigned in April 2019 and we added two new directors to our board of directors at such time, which may lead to changes in our operations.

 

Two new directors were elected to our board of directors, and two existing directors resigned from our board of directors, on April 8, 2019, The two new directors are nominees of our new controlling shareholder. Because of these recent additions and resignations, our board of directors has not worked together as a group for an extended period of time. This change in the composition of our board of directors may lead to changes in our operations as these new directors analyze our business and contribute to the formulation of business strategies and objectives. Our operating results could be adversely affected as we adjust to new business strategies and objectives.

 

Sales of ADSs issuable upon exercise of the Warrants issued to Life Biosciences may cause the market price of our ADSs to decline.

 

The Warrants held by Life Biosciences entitle it to purchase up to 8,996,851 ADSs, representing 539,811,066 of our ordinary shares, at a purchase price per ADS of A$2.70. The sale of such ADSs, or the perception that such sales could occur, may cause the market price of our ADSs to decline or become more volatile. In addition, the fact that Life Biosciences can sell substantial amounts of ADSs in the public market, whether or not sales have occurred or are occurring, could make it more difficult for the Company to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that it deems reasonable or appropriate.

 

Our stock price may be volatile and the U.S. trading market for our American Depository Shares (ADSs) is limited.

 

The market price for our securities, like that of the securities of other pharmaceutical and biotechnology companies, has fluctuated substantially and may continue to be highly volatile in the future. During the last two fiscal years ended June 30, 2019 and subsequently until August 30, 2019, the market price for our ordinary shares on the ASX has ranged from as low as A$0.023 to a high of A$0.078 and the market price of our ADSs on the NASDAQ Capital Market has ranged from as low as U.S.$0.91 to a high of U.S.$3.79. The market price for our securities has been affected by both broad market developments and announcements relating to actual or potential developments concerning products under development. We believe that the following factors, in addition to other risk factors described above and elsewhere in this annual report, will continue to significantly affect the market price of our ordinary shares:

 

  the results of pre-clinical testing and clinical trials by us and our competitors;
     
  developments concerning research and development, manufacturing, and marketing alliances or collaborations by us and our competitors;
     
  announcements of technological innovations or new commercial products by us and our competitors;
     
  determinations regarding our patent applications, patents and those of others;
     
  publicity regarding actual or potential results relating to medicinal products under development by us and our competitors;
     
  proposed governmental regulations and developments in Australia, the U.S. and elsewhere;

 

  litigation;
     
  economic and other external factors; and
     
  period-to-period fluctuations in our operating results.

 

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In addition, stock markets have experienced extreme price and volume fluctuations. These fluctuations have especially affected the stock market price of many high technology and healthcare related companies, including pharmaceutical and biotechnology companies, and, in many cases, are unrelated to the operating performance of the particular companies. Market fluctuations, as well as general political and economic conditions, such as a recession, interest rate or currency rate fluctuations, could adversely affect the market price of our securities.

 

Ownership interest in our company may be further diluted as a result of additional financings.

 

We may seek to raise funds from time to time in public or private issuances of equity, and such financings may take place in the near future or over the longer term. In May 2011, we registered U.S.$50,000,000 of securities for public sale pursuant to our registration statement on Form F-3. In July 2011, we issued a prospectus under such registration statement providing for the sale of up to 50 million ordinary shares represented by 5 million ADSs pursuant to an “At-The-Market” facility. In August 2013 we issued a prospectus providing for the sale of up to U.S.$47,184,000 of our ordinary shares under an amended “At-The-Market” facility. On November 26, 2014, we entered into Amendment No. 2 to our At-The-Market Issuance Sales Agreement, to continue the at-the-market equity program under which we may from time to time sell up to an additional aggregate of $50,000,000 of our ordinary shares represented by ADSs. From November 26, 2014 until June 30, 2015 we sold A$7.1 million of additional ordinary shares under this program. On October 13, 2016, we entered into an At-Market Issuance Sales Agreement, for an at-market offering program under which we may from time to time sell up to an aggregate of U.S.$44,460,787 of our ordinary shares represented by ADSs. On November 8, 2017 we entered into Amendment No. 1 to our At-Market Issuance Sales Agreement to continue the at-market offering program which we may from time to time sell up to an aggregate of $50,000,000 of our ordinary shares represented by ADSs. From July 1, 2018 and to date, we sold U.S.$1,355,474 of additional ordinary shares under this program. Since the inception of our At-The-Market” facility in 2011 and to date we sold an aggregate of 208,684,810 ordinary shares under this facility and raised a total of A$48.4 million (U.S.$43.9 million) in gross proceeds.

 

Without shareholder approval, we may not issue more than 25% of our outstanding ordinary shares in any twelve month period other than by a pro rata rights offering or a share purchase plan offer (of shares with a value at the issue price of up to A$15,000 per shareholder to a maximum of 30% of our outstanding shares) in each case to the then existing shareholders in accordance with the listing rules of the ASX. Sales of our ADSs offered through our “At-The-Market” facility and future equity offerings may result in substantial dilution to the interests of our current shareholders. The sale of a substantial number of securities to investors, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.

 

There is a substantial risk that we are a passive foreign investment company, or PFIC, to some U.S. investors which will subject those investors to adverse tax rules

 

Holders of our ADSs who are U.S. residents face income tax risks. There is a substantial risk that we are a passive foreign investment company, commonly referred to as a PFIC to some U.S. investors, and a controlled foreign corporation, or CFC to other U.S. investors. Our treatment as a PFIC could result in a reduction in the after-tax return to the holders of our ADSs and would likely cause a reduction in the value of such ADSs. For U.S. federal income tax purposes, we will be classified as a PFIC for any taxable year in which either (i) 75% or more of our gross income is passive income, or (ii) at least 50% of the average value of all of our assets for the taxable year produce or are held for the production of passive income. For this purpose, cash is considered to be an asset that produces passive income. As a result of our substantial cash position and the decline in the value of our stock, we believe that we became a PFIC during the taxable year ended June 30, 2005, and once again qualified as a PFIC during each of the following fiscal years. We believe that we once again will be classified as a PFIC for the taxable year ended June 30, 2019 for some U.S. investors. Highly complex rules will apply to U.S. holders owning ADSs. Accordingly, you are urged to consult your tax advisors regarding the application of such rules. U.S. residents should carefully read “Item 10.E. Additional Information - Taxation, United States Federal Income Tax Consequences” for a more complete discussion of the U.S. federal income tax risks related to owning and disposing of our ADSs.

 

We do not anticipate paying dividends on our ordinary shares.

 

We have never declared or paid cash dividends on our ordinary shares and do not expect to do so in the foreseeable future. The declaration of dividends is subject to the discretion of our Board of Directors and will depend on various factors, including our operating results, financial condition, future prospects and any other factors deemed relevant by our board of directors. You should not rely on an investment in our company if you require dividend income from your investment in our company. The success of your investment will likely depend entirely upon any future appreciation of the market price of our ordinary shares, which is uncertain and unpredictable. There is no guarantee that our ordinary shares will appreciate in value or even maintain the price at which you purchased your ordinary shares.

 

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Currency fluctuations may adversely affect the price of our ordinary shares.

 

Our ordinary shares are quoted in Australian dollars on the ASX and our ADSs trade on the NASDAQ Capital Market in U.S. dollars. Movements in the Australian dollar/U.S. dollar exchange rate may adversely affect the U.S. dollar price of our ordinary shares. In the past year the Australian dollar has generally depreciated against the U.S. dollar. Any continuation of this trend may negatively affect the U.S. dollar price of our ordinary shares, even if the price of our ordinary shares in Australian dollars decreases or remains unchanged. However, this trend may not continue and may be reversed. If the Australian dollar strengthens against the U.S. dollar, the U.S. dollar price of the ordinary shares could increase, even if the price of our ordinary shares in Australian dollars decreases or remains unchanged.

 

Risks Related to Our Location in Australia

 

It may be difficult to enforce a judgment in the United States against us and our officers and directors or to assert U.S. securities laws claims in Australia or serve process on our officers and directors.

 

We are incorporated in Australia. Most of our executive officers and directors are non-residents of the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities laws in an Australian court against us or any of those persons or to effect service of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to enforce civil liabilities under U.S. federal securities laws in original actions instituted in Australia.

 

As a foreign private issuer whose shares are listed on The NASDAQ Capital Market, we may follow certain home country corporate governance practices instead of certain NASDAQ requirements.

 

As a foreign private issuer whose shares are listed on The NASDAQ Capital Market, we are permitted to follow certain home country (Australian) corporate governance practices instead of certain requirements of The NASDAQ Stock Market Rules. A foreign private issuer that elects to follow a home country practice instead of NASDAQ requirements must submit to NASDAQ in advance a written statement from an independent counsel in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws. In addition, a foreign private issuer must disclose in its annual reports each such requirement that it does not follow and describe the home country practice followed by the issuer instead of any such requirement. Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ’s corporate governance rules. As of the date of this report, we have elected to follow home country practices instead of the following NASDAQ requirements:

 

the Rule related to Audit Committee Composition rule 5605(c)(2)(A)): we may have an audit committee composed of two members instead of “at least three members”. We may not follow NASDAQ rules regarding independence of such members (as long as comply Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, subject to the exemptions provided in rule 10A-3(c)), and we may not have a financially sophisticated member as defined.

 

the Rule requiring maintaining a majority of independent directors (Rule 5605(b)(1))

 

the Rule requiring that our independent directors have regularly scheduled meetings at which only independent directors are present (Rule 56505(b)(2)

 

the Rule regarding independent director oversight of director nominations process for directors (Rule 5605(e)

 

the Rule regarding independent director oversight of executive officer compensation (Rule 5605(d)

 

the requirement to obtain shareholder approval for the establishment or amendment of certain equity based compensation plans (Rule 5635(c), an issuance that will result in a change of control of the company (Rule 5635(b), certain transactions other than a public offering involving issuances of a 20% or more interest in the company (Rule 5635(d) and certain acquisitions of the stock or assets of another company (Rule 5635(a)).

 

We currently do not have a majority of independent directors serving on our Board of Directors, which may afford less protection to our shareholders than if our Board of Directors had a majority of independent directors,

 

As of the date of this annual report, a majority of our directors did not satisfy the standards for independence as specified by the SEC and the listing standards of The Nasdaq Stock Market pursuant to which we evaluate director independence. If our Board of Directors is not made up of a majority of independent directors, there may be a lower level of oversight on executive management, and our Board of Directors may be influenced by the concerns, issues or objectives of management, including compensation and governance issues, to a greater extent than would occur with a majority of independent directors. As a result, the composition of our Board of Directors may afford less protection to our shareholders than if our Board of Directors were composed of a majority of independent directors.

 

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A lack of independent directors may also make it difficult to create board committees meeting the requirements of our board committee charters and the NASDAQ Rules pursuant to which we evaluate director independence. Historically, we have strived to have an audit committee comprised of at least three independent directors and other board committees comprised solely of independent directors. Currently, our audit committee has only two members, both of who are independent under the NASDAQ Rules and applicable SEC requirements. Due to the lack of independent directors, it may be difficult to establish effective operating board committees comprised of independent members to oversee committee functions. This structure gives our executive officers additional control over certain corporate governance issues, including compensation matters and audit issues for internal control and reporting purposes, with more limited oversight of our executive officers' decisions and activities.

 

Australian takeovers laws may discourage takeover offers being made for us or may discourage the acquisition of large numbers of our ordinary shares.

 

We are incorporated in Australia and are subject to the takeovers laws of Australia. Among other things, we are subject to the Australian Corporations Act 2001, or the Corporations Act. Subject to a range of exceptions, the Corporations Act prohibits the acquisition of a direct or indirect interest in our issued voting shares if the acquisition of that interest will lead to a person’s voting power in us increasing from 20% or below to more than 20%, or increasing from a starting point that is above 20% and below 90%. Australian takeovers laws may discourage takeover offers being made for us or may discourage the acquisition of large numbers of our ordinary shares. This may have the ancillary effect of entrenching our board of directors and may deprive or limit our shareholders’ strategic opportunities to sell their ordinary shares and may restrict the ability of our shareholders to obtain a premium from such transactions.

 

Our Constitution and other Australian laws and regulations applicable to us may adversely affect our ability to take actions that could be beneficial to our shareholders.

 

As an Australian company we are subject to different corporate requirements than a corporation organized under the laws of the United States. Our Constitution, as well as the Corporations Act, set forth various rights and obligations that are unique to us as an Australian company. These requirements operate differently than from many U.S. companies and may limit or otherwise adversely affect our ability to take actions that could be beneficial to our shareholders. For more information, you should carefully review the summary of these matters set forth under the section entitled, “Item 10.B — Additional Information — Memorandum and Articles of Association” as well as our Constitution.

 

ITEM 4. Information on the Company

 

A.History and Development of the Company

 

Our legal and commercial name is Alterity Therapeutics Limited (formerly Prana Biotechnology Limited). We were incorporated under the laws of the Commonwealth of Australia on November 11, 1997 and began limited operations shortly thereafter. Our registered office is located at Level 3, 62 Lygon Street, Carlton, Victoria, 3053, Australia and our telephone number is 011-61-3-9824-5254. Our principal executive office is located at Level 3, 460 Bourke Street, Melbourne, VIC 3000, Australia and our telephone number is 011-61-3-9349-4906. Our website address is www.alteritytherapeutics.com. The information in our website is not incorporated by reference into this annual report.

 

Alterity is developing first-in-class therapies to treat neurodegenerative diseases. Its lead drug candidate, PBT434, has demonstrated pre-clinical evidence as a potential treatment of Parkinsonian disorders and has had encouraging results in its Phase 1 clinical program, which was completed this year. The scientific hypothesis of PBT434 is that it prevents brain cells from dying by blocking the formation of toxic alpha-synuclein fibrils. The accumulation of the alpha-synuclein protein within neurons and glial support cells is a pathological hallmark of Multiple system atrophy (“MSA”), a Parkinsonian disorder and Alterity’s first therapeutic target.  PBT434 has previously been shown in animal models of Parkinson’s disease and MSA to reduce alpha-synuclein aggregation, preserve neurons and improve motor function.

 

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Other potential applications for our therapies include neurodegenerative disorders, certain cancers, age-related macular degeneration, Motor Neuron disease, Creutzfeldt-Jakob disease (the human variant of Mad Cow disease) and a variety of orphan neurodegenerative disorders. Our technology is the outcome of many years of intense research from some of the leading scientists in the world in the area of age-related degenerative diseases. In August 2009, a key patent protecting our clinical drug asset PBT2 was granted by the European Patent Office, or the EPO. The patent entitled ‘8-Hydroxyquinoline derivatives’ covers the composition of matter of selected families of 8-Hydroxyquinoline compounds, including PBT2, and the uses of such compounds for the treatment of neurological diseases, including Alzheimer’s disease and Huntington disease. The European patent has a 20-year term expiring on July 16, 2023, with a possible extension of the term of up to five additional years under supplementary protection provisions. In November 2009, our key patent protecting our clinical drug asset PBT2 was granted in the United States. The U.S. patent, which is also entitled ‘8-Hydroxyquinoline derivatives,’ covers the composition of matter of selected families of 8-Hydroxyquinoline compounds, including PBT2, and will expire on December 21, 2025. It is possible that the patent may be further extended in the future under the pharmaceutical extension of term provisions that apply in the United States. In March 2015, claims to the use of PBT2 in the treatment of Alzheimer’s disease were granted and in October 2015, claims to the use of PBT2 for the treatment of Huntington disease were granted. In April 2011, the Japanese Patent Office granted the same patent, also entitled ‘8-Hydroxyquinoline derivatives’, with the claimed subject matter encompassing compounds and pharmaceutical compositions containing PBT2 and the use of the compounds for the treatment of Alzheimer’s disease. The Japanese patent will expire on July 2023 and may be eligible for pharmaceutical extension of patent term for up to a further five years. In December 2011, claims for our key patent protecting our product candidate for Parkinson’s disease, PBT434 was granted in the United States. The patent is entitled ‘Neurologically Active Compounds’ and covers the composition of matter and pharmaceutical compositions of selected families of 8-hydroxyquinazolinone compounds, including PBT434. In March and April 2013, we also received a Notice of Grant from the Canadian Patent Office and European Patent Office, respectively, for our key patent protecting PBT434.  The patents, which are entitled, ‘Neurologically Active Derivatives’ cover the composition of matter of selected quinazolinone compounds, including PBT434. These two cases also included additional granted claims to the use of the compounds for the treatment of neurodegenerative diseases.

 

Our technology has progressed to yield a diversified library of chemical compounds, which may yield future product candidates across various neurodegenerative indications.

 

Future clinical studies with PBT2 may depend on the either lifting the Partial Clinical Hold (PCH) which currently restricts drug exposure levels and/or the possible development of PBT2 for new therapeutic indications. See “Item 4.B. – Information on the Company – Business Overview – Clinical Trials for Our Product Candidates”).

 

Since inception, we have not been required to invest material amounts for capital expenditures since our development efforts have taken place at research facilities operated by institutions with which we have relationships. In the three fiscal years ended June 30, 2019, our capital expenditures have totaled A$97,345.

 

B.Business Overview

 

Alterity’s Background

 

Medical science has made a significant number of breakthroughs over the past century. The average life span in western cultures has substantially increased. The diseases associated with aging have, however, yet to be fully understood or effectively treated. It is now believed that a number of age-related diseases may be capable of being treated.

 

The protein believed to be involved in the toxicity associated with Alzheimer’s disease is beta amyloid. Very little was known about beta-amyloid protein until 1984 when Professors Colin Masters, Konrad Beyreuther and the late Dr. George Glenner sequenced the chemistry of the protein which has since become the dominant focus of Alzheimer’s disease research world-wide. In 1987, Professors Masters, Beyreuther and Rudi Tanzi of Harvard Medical School discovered how beta-amyloid was produced and in 1994, Professor Ashley Bush of Harvard Medical School discovered that the interaction between metals and beta-amyloid is associated with the toxicity seen in Alzheimer’s disease, hopefully paving the way for the development of therapeutic drugs to treat the disease.

 

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Our intellectual property has been developed over an extended period through the collaborative efforts of highly regarded scientists and research institutions in this field. The intellectual property owned by our company has been developed by our employees and through a team of scientists engaged by our company at several internationally recognized institutional research facilities, listed below.

 

The University of Melbourne, Department of Pathology; and

 

The Florey Institute of Neuroscience and Mental Health in Melbourne.

 

The Massachusetts General Hospital, Genetics and Aging Unit in Boston. Massachusetts General Hospital (MGH); and

 

University of California, San Francisco.

 

Work conducted at the University of Melbourne and MGH demonstrated that clioquinol, codenamed PBT1, had potential efficacy for the treatment of Alzheimer’s disease. Since completing our initial public offering and listing process of our ordinary shares on the ASX on March 28, 2000, we historically concentrated our resources toward the pursuit of our disease targets and creation of a chemical library of proprietary molecules. Our research efforts led to the development of a novel compound, PBT2, a low molecular weight chemical entity that demonstrates a significant pre-clinical improvement over PBT1, and currently a library of over 2,000 other molecules from different chemical scaffolds. More recently, our research efforts have focused on identifying novel compounds that bind and redistribute labile (or reactive) iron that is increased in Parkinsonian diseases and thought to be implicated in their pathogenesis.

 

Our chemistry program is undertaken within laboratories leased from The University of Melbourne’s Bio21 Molecular Science and Biotechnology Institute, which is a multidisciplinary research center that specializes in medical, agricultural and environmental biotechnology. Accommodating more than 500 research scientists, students and industry participants, the Bio21 Institute is one of the largest biotechnology research centers in Australia.

 

Candidate product discovery and translational Biology Programs

 

We regard our intellectual property as a “platform technology” since we believe that it addresses the causes of a broad spectrum of neurodegenerative and age-related diseases based on the interrelationship of metals and proteins. Historically, the majority of our research efforts have been directed at research into potential therapeutics for the treatment of Alzheimer’s disease, Huntington disease and Parkinsonian movement disorders. Published data together with our initial findings have provided strong indications that the pathology for other certain age-related and degenerative disorders may also be based on the inter-relationship between certain metals and proteins, and we believe that the platform technology may also be applicable for certain cancers, age-related macular degeneration, Motor Neuron disease, Creutzfeldt-Jakob disease and other neurodegenerative diseases. To date, we have performed in vivo evaluations of our product candidates in a range of mouse animal models including models of Alzheimer’s disease, Huntington disease, Parkinsonian diseases, brain cancer and traumatic brain injury.

 

Product candidates are selected from our chemical library on the basis of rational drug design. Product candidates are designed to fulfill very specific criteria such as oral bioavailability and ability to cross the blood-brain barrier, and demonstrate significant effectiveness in both nonclinical in vitro and in vivo testing.

 

To increase depth and breadth of our pipeline into new neurodegenerative indications, we have continued to develop our ‘two tier’ Translational Research program structure during 2018. The first tier encompasses core new chemical entity design, synthesis and characterization, the ‘discovery phase’ of the new entities as potential novel agents of interest based on their mechanism of action profile. Our discovery research has established Structure Activity Relationships (“SAR”) within chemical moieties that guide our chemists towards the design of novel therapeutics. The discovery phase also includes preliminary bioavailability and pharmacokinetic characterization. The second tier comprises ‘translational’ animal modeling programs to test and validate new candidates as potential development product candidates. To date, our library comprises more than 2,000 compounds. Using SAR that has been developed over years of testing and validation by Alterity scientists, new compounds are being generated that retain functionality across diverse and novel chemical scaffolds.

 

Over the last year, new compounds from several scaffolds were synthesized and began mechanistic profiling. The compounds are initially screened for activity in biological systems relevant to the candidate diseases we are targeting. New screens are being investigated that will assess the ability of a compound intercede in the pathogenic steps thought to underly the disease processes for target diseases. Such steps include pathologic protein aggregation and downstream activities such as oxidative stress and cell death. Promising candidates arising from the Translational Research program may be progressed as back up compounds in Alzheimer’s disease and Huntington disease, Parkinsonian diseases and/or new indications in neurodegeneration, in particular, orphan indications.

 

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Parkinson's Disease and Movement Disorders

 

Parkinson’s disease, another neurodegenerative disease of the aging population, causes a progressive slowing of movement, tremors and the loss of fine motor control due to the death of substantia nigra cells in the brain. These cells produce the neurotransmitter dopamine in the brain, which is required for normal motor control. Existing therapies, such as dopaminergic agents, may provide symptomatic relief, but do not address the underlying cause of the disease. We believe that drug candidates in our library may affect the aggregation of the proteins implicated in the pathology of Parkinson’s disease and related movement disorders.

 

During 2005, we entered into a contractual arrangement with the Integrative Neuroscience Facility based at the Florey Institute of Neuroscience and Mental Health in Melbourne, or the Florey Institute, to assist in the efficacy evaluation of novel compounds in models relevant to Parkinson’s disease, specifically the 6-hydroxydopamine mouse model and the MPTP (1-methyl-4-phenyl-1,2,3,6-tetrahydropyridine) mouse model. The toxins used in these two mouse models mimic the disease by causing impairment of the cells of the substantia nigra, the area of the brain primarily affected in Parkinson’s disease, and subsequent loss of motor function. During 2009 and 2010, our lead Parkinson’s disease treatment candidate emerged, PBT434, based on significant improvement in motor function and coordination in both models. Of note, PBT434 improved relevant indices when administered after toxins had destroyed significant amounts of substantia nigra tissue, indicating that the compound can restore and maintain normal neuronal function. During 2011, further mechanistic characterisation work demonstrated that PBT434 reduced the accumulation of the target protein in Parkinson’s disease, alpha-synuclein.

 

In August 2011, the New York-based Michael J. Fox Foundation awarded us a $206,000 grant entitled, ‘PBT434, a Novel Neuroprotective Drug For Parkinson’s Disease; Completion of Pre-Clinical Studies to Enable Human Clinical Trials.’ The research supported by this grant has included various nonclinical studies (safety pharmacology, general toxicology, genetic toxicology), the results of which allowed the compound to be positioned for Phase 1 clinical trials in healthy volunteers and larger scale animal toxicology studies that will enable clinical trials in applicable subjects.

 

In November 2012, our scientists, Dr. Robert Cherny and Associate Professor David Finkelstein, Head of the Synaptic Neurobiology laboratory at the Florey Institute, received an NHMRC grant to study the benefits of PBT434 in a program entitled, "Identifying the mechanisms of action of a novel 8-hydroxyquinazolinone in models of Parkinson's disease." The program helped elucidate some of the innate mechanisms of action of PBT434.

 

In June 2013, our science was highlighted at the 17th Movement Disorders Congress of Parkinson’s Disease and Movement Disorders, in Sydney, Australia. Professor Colin Masters, Director of The Mental Health Research Institute at the Florey Institute and Assoc. Professor David Finkelstein presented data showing that PBT434 prevented the aggregation of alpha synuclein, the protein target in Parkinson’s and other movement disorders. The ability of PBT434 to reduce alpha-synuclein accumulation has highlighted the potential for PBT434 to treat other movement disorders characterized by the over expression alpha-synuclein including the orphan disease Multiple system atrophy, which is a rare form of “atypical parkinsonism”.

 

Mechanistic work has demonstrated that PBT434 reduces oxidative stress and inhibits the aggregation of toxic α-synuclein species. Part of this investigation was supported by Parkinson’s UK grant of £150,000, awarded in 2013 to Leeds University in collaboration with Associate Professors David Finkelstein and Robert Cherny of the Florey Institute. In 2017, Drs. Finkelstein, Cherny and colleagues published data indicating that PBT434 prevented cell death in the substantia nigra in a dose-dependent manner. The data also demonstrated the therapeutic potential of PBT434 to slow neurodegeneration with results in multiple Parkinson’s disease models, including a transgenic model of Parkinson’s disease (A53T) in which mice over-expressed the alpha-synuclein protein. In A53T mice, animals treated with PBT434 exhibited significantly increased numbers of s.nigra neurons and a significant reduction in insoluble α-synuclein and incidence of clasping behavior. These results showed that PBT434 lowered alpha-synuclein, preserved neurons and simultaneously improved motor performance. The paper was entitled, “The novel compound PBT434 prevents iron mediated neurodegeneration and alpha-synuclein toxicity in multiple models of Parkinson’s disease” and was published in Acta Neuropathol Comm.

 

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PBT434 has also been profiled in mouse models of atypical Parkinsonian conditions, including orphan diseases such as Multiple system atrophy (MSA) and Progressive Supranuclear Palsy, a tauopathy. An outline of results include:

 

In an animal model of MSA, PBT434 prevents α-synuclein aggregation and preserves neurons in the s. nigra and decreased the number of glial cell inclusions in the brains of treated animals.  Glial cell inclusions are the pathological hallmark of MSA and contain abundant aggregated α-synuclein that is associated with neurodegeneration.  The pathologic benefits were associated with improved motor function in treated animals. 

 

In mutant overexpressing tau mice, rTg4510, PBT434 has demonstrated significant improvement in the Y-maze cognitive assessment and resulted in a significant reduction in the number of abnormal tau deposits in the hippocampus of 12 month old mice.

 

A comprehensive nonclinical program has been conducted to evaluate PBT434’s profile in support of Phase 1 studies in healthy volunteers was completed. PBT434 had no relevant off-target binding activity in a broad panel of protein interactions. PBT434 did not have significant inhibitory activity of the hERG channel relevant to expected human plasma concentrations in a GLP study. PBT434 was well-tolerated in safety pharmacology studies (GLP cardiovascular, respiratory and central safety pharmacology studies) and in GLP 28-day general toxicity studies in the rat and dog. PBT434 is subject to diverse metabolic pathways and is brain penetrant. Long term toxicology and metabolism studies to support patient studies are ongoing.

 

Alzheimer’s disease

 

PBT2, our product candidate for Alzheimer’s disease, is the result of rational drug design and was built “from the ground up” to fulfill very specific criteria. It was designed so that it will be orally bioavailable and cross the blood-brain barrier and to have an improved safety and efficacy profile compared to the prototype MPAC, PBT1. Phase I trials for PBT2 were completed by February 2006 in healthy young and aged volunteers and demonstrated that the drug was well tolerated and suitable for Phase II clinical development.

 

In 2008, top line results for a Phase IIa clinical study in mild Alzheimer’s disease patients were announced, including the primary endpoints of safety and tolerability being met together with several secondary endpoints in biomarker and cognition endpoints also being met. In November 2009, an erratum to the July 2008 edition of The Lancet Neurology journal was published that corrected the original results of the neuropsychological test battery, or NTB, arising from the Phase IIa trial. The corrected results show that the overall executive function domain of the NTB, comprising five cognitive tests, was significantly improved for those patients taking 250mg of PBT2 compared to patients on placebo.

 

In March 2011, we announced that the New York-based Alzheimer’s Drug Discovery Foundation would make a $700,000 project-based investment towards a Phase II imaging biomarker study in 40 patients with prodromal or mild Alzheimer’s disease. In March 2014, top line results for the study were announced. The study entailed the use of an amyloid imaging ligand to detect changes in brain beta-amyloid burden after 52 weeks treatment with PBT2 or placebo. For more information, see Item 4.B. “Information on the Company - Business Overview - Clinical Trials for Our Product Candidates.”

 

In July 2008, the results of extensive pre-clinical research findings for PBT2 were published in the journal Neuron. The paper by Alterity scientist, Associate Professor Paul Adlard was entitled, “Rapid restoration of cognition in Alzheimer’s transgenic mice with 8-hydroxyquinoline analogs is associated with decreased interstitial Aβ”. The key findings included the demonstration that PBT2 could rapidly improve cognition in transgenic mice, prevent the formation of toxic soluble Abeta oligomers, lower the Abeta levels in the brain of transgenic mice and protect neurons from the toxic effect of Abeta at the synapses between neurons enabling improved neurotransmission. In March 2009, we published further data on the impact of PBT2 on synapses in transgenic animal models. The findings demonstrated that PBT2 could prevent the loss of synapses in these Alzheimer’s disease animal models, indicating that PBT2 has a potent neuroprotective effect on neurons, consistent with the observation that PBT2 can improve cognitive performance in impaired transgenic animals.

 

During 2009 and 2010, our scientists further examined the apparent link between aging and disease related defects due to metal imbalances in the brain. In February 2010, we reported in The Journal of Neuroscience on the loss of synaptic zinc uptake mechanisms in aged animal models and how this correlated with cognitive impairment. Our scientists also investigated the molecular basis for the neuroprotective qualities of PBT2 in animal models of Alzheimer’s disease. They found that several important intracellular signaling pathways required for neuronal function were stimulated when animals were treated with PBT2. In March 2011, we reported in the scientific journal PLoS ONE that in the same Alzheimer’s animal model where PBT2 is able to significantly improve cognition, it also caused changes in the brain anatomy. Specifically, it was observed that PBT2 treatment had significantly increased the numbers of spines on the branches (or dendrites) of neurons in the hippocampus, a memory centre affected in Alzheimer’s disease. Increasing the number of spines permits many more neurons to interconnect with any particular neuron thereby increasing the brain’s capacity to carry out learning and memory functions. These findings provide an insight into how PBT2 helps preserve and protect neurons in Alzheimer’s disease and also in animal models of Huntington disease.

 

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In September 2011, new data was published on how the ability of PBT2 to transport and deliver zinc and copper in the brain contributes to mechanisms related to its anti-toxic effects of Alzheimer’s disease, including inhibition of beta-amyloid aggregation and promotion of the activation of GSK3 protein, an important brain protein suggested to be involved in Alzheimer disease. In addition, one of our research scientists, Dr. Paul Adlard, received an Australian National Health and Medical Research Council, or NHMRC, grant to study the benefits of PBT2 and other compounds in age-related cognitive impairment in a program entitled, "The role of metals in healthy brain aging: identification of novel compounds to prevent age-related cognitive decline.” The grant provided an opportunity to explore the importance of metal distribution imbalances in the brain to both cognitive deficits with aging and Alzheimer disease. Also in October 2011, our scientist and co-inventor of PBT2, Dr. Kevin Barnham, was awarded a NMHRC grant to explore how PBT2's copper binding and transport activity can inhibit brain excitotoxicity, which is the overstimulation of certain chemical neurotransmitter receptors on neurons (NMDA receptors). Excitotoxicity is a common feature in the brains of patients affected by neurodegenerative disorders such as Alzheimer’s disease and Huntington disease. In March 2012, our Chief Scientific Advisor, Professor Rudolph E. Tanzi, published an important body of work on the role of brain metals in the etiology of Alzheimer’s disease, supporting Alterity’s therapeutic strategy. The paper was entitled, ‘The Zinc Dyshomeostasis Hypothesis of Alzheimer’s disease’ published in PLoS ONE in March 2012.

 

In March 2013, Dr. Paul Adlard, presented a paper entitled, “Metal Chaperones are novel therapeutic agents for tauopathy.” The findings presented exemplified that the ability of PBT2 to intercede in aberrant metal and target protein interactions and to correct abnormal metal distribution in the brain resulted in PBT2 being able to prevent the formation of ‘tangle like’ inclusions in neurons in a mouse model. Tau tangles are known to cause neuronal death. This work builds upon the knowledge that PBT2 can prevent the metal mediated toxic gain of function of target proteins such as Abeta and tau to form harmful aggregates in the brain. The data was generated in transgenic mouse model of tauopathy and demonstrated a significant decrease in tau tangle formation, a significant increase in cortical and hippocampal neurons and significant increase in cognitive performance as measured by the Y-maze.

 

In October 2013, Dr. Adlard also published a paper on the ability of PBT2 to restore learning and memory in aged mice. His paper, entitled “A Novel Approach To Rapidly Prevent Age-Related Cognitive Decline” and published in the journal Aging Cell, demonstrated that PBT2 could restore the cognition of aged mice to that of young, cognitively normal mice. Age-related cognitive decline is associated with measurable structural and biochemical changes in the brain, which Alterity scientists have shown to be significantly improved by PBT2 administration. Importantly, it has been shown that PBT2 increased expression of markers of neurogenesis and increased synaptic density which in turn, correlated with improved performance on memory tasks.

 

The underlying mechanisms of action of PBT2 work to prevent metal mediated neurodegenerative processes including oxidative stress, formation of toxic amyloid oligomers and compromised neuronal and synaptic function leading to cognitive impairment. In Alzheimer’s disease, beta-amyloid aggregates in the synaptic cleft have been associated with impaired synaptic transmission as evidenced by reduced Long Term Potentiation experiments (LTP) in mice. Alterity scientists have published that PBT2 is able to inhibit the beta-amyloid induced inhibition of LTP, thus restoring synaptic capability and cognitive function. In February 2015, a new mechanism of action of PBT2 was published in Neurobiology of Disease which demonstrated the ability of PBT2 to protect against glutamate-induced (synaptic) excitotoxicity in a metal dependent manner. The paper was entitled, “PBT2 inhibits glutamate-induced excitotoxicity in neurons through metal-mediated preconditioning”. The over excitation of NMDA receptors in glutamatergic neurons leads to mitochondrial damage and cell death and has been postulated as one of the pathological events in Alzheimer’s disease and Huntington disease. Further elucidation of the protective role of PBT2 is required, however it appears that the zinc ionophore property of PBT2 works to increase intracellular zinc in the post synaptic terminal, triggering the release of calcium which in turn, leads to neuroprotective pathways being activated inside the neuron that prevent excitotoxicity. Over recent years, the ability of PBT2 to reduce the phosphorylation of the microtubule-associated protein ‘tau” has been demonstrated in new in vitro screening assays and modelled in transgenic mice. Phosphorylated tau is deposited in cells as fibrillar aggregates in numerous neurodegenerative diseases, notably Alzheimer's disease and also Huntington disease and other neurodegenerative disorders. The functions of tau are regulated by site-specific phosphorylation events, which are dysregulated in the disease state, resulting in tau dysfunction and mislocalization. This can lead to aggregation, neuronal dysfunction and death. Unpublished data show that PBT2 can reduce tau phosphorylation and improve cognitive function in a transgenic tau mouse model.

 

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Huntington disease

 

Huntington disease is a crippling genetic neurodegenerative disorder of the central nervous system caused by a mutation in a gene which encodes the huntingtin protein. The disease results in progressive deterioration of physical, cognitive and emotional abilities that lead to severe incapacitation and eventually death, generally 15-25 years after the onset of the disease. Huntington disease primarily affects adults, usually between the ages of 30 and 50.

 

U.S.-based researchers have presented the effects of clioquinol in an animal model of Huntington disease, showing evidence of improved behavior, motor skills and inhibition of the abnormal form of the Huntingtin protein. Based on these findings, we have tested several proprietary compounds in collaboration with researchers based at the Veterans Affairs Medical Center and the Department of Neurology, University of California, San Francisco, under a collaborative research agreement. PBT2 has shown good efficacy in the R6/2 mouse model of Huntington disease.

 

In late July 2008, we received the findings from a report commissioned by us from U.S.-based clinical researchers on the suitability of PBT2 for Huntington disease. The report detailed the relevance of animal modeling experiments done with PBT2, its demonstrated mode of action in the brains of Huntington disease model mice and its promising safety and efficacy findings in the earlier Alzheimer’s disease Phase IIa study with PBT2. The report recommended that we proceed to clinical trials in Huntington disease research participants.

 

In July 2010, we presented data emerging from our research and development that the neuroprotective qualities of our product candidate PBT2 indicated that it may have clinical application in Huntington disease patients in addition to Alzheimer’s disease. At the International Conference on Alzheimer’s disease in Hawaii, Dr. Robert Cherny described how PBT2 prolonged survival, increased motor strength and delayed involuntary limb clenching that otherwise presents in the transgenic mouse model of Huntington disease. In addition, PBT2 appears to prevent the aggregation of the hallmark toxic mutant huntingtin protein. Examination of the brains of transgenic mice revealed that PBT2 had a significant impact on preventing the degeneration of neurons, providing further evidence of the neuroprotective attributes of PBT2 that had been reported earlier in our work on Alzheimer’s disease.

 

In December 2010, our management assembled a team to develop a Phase IIa clinical trial protocol for the treatment of Huntington disease with PBT2. The group comprised leading clinical researchers from Australia and the United States, including members from the Huntington Study Group based in the United States and Australia. The team designed a six month Phase IIa clinical trial testing PBT2, or the Reach2HD Trial, which included a randomized, double blind placebo controlled study of patients with early to mid-stage Huntington disease. For additional details regarding the clinical trial in Huntington disease with PBT2, see Item 4.B. “Information on the Company - Business Overview - Clinical Trials for Our Product Candidates.”

 

In December 2012, we announced the publication of the paper entitled, "PBT2 extends lifespan, reduces striatal atrophy and improves motor performance in a transgenic mouse model of Huntington disease" in the Journal of Huntington disease. This paper describes how PBT2 significantly improved functional performance of the mice in the R6/2 model as a consequence of the neuroprotective properties of PBT2 by regulating certain metal mediated events in the brain.

 

As described in the preceding section, ‘Platform Technology, Discovery and Translational Research Programs – Alzheimer’s disease’, in October 2013 Alterity scientist Associate Professor Paul Adlard published a paper in the journal Aging Cell, demonstrating that PBT2 could restore the cognition of aged mice to that of young, cognitively normal mice. Age-related cognitive decline is associated with measurable structural and biochemical changes in the brain, which Alterity scientists have shown to be significantly improved by PBT2 administration. In particular, this restoration of cognitive function was accompanied by an increase in underlying hippocampal neurons, synaptic density and neuronal proliferation markers around the lateral ventricles, a region susceptible to atrophy in Huntington disease.

 

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Important support for the role of copper in the disease process in Huntington disease came from Tsinghua University in China (Xiao et al PNAS 2013). Using a Drosophila model of Huntington disease, bearing an expanded polyQ Htt gene, workers showed that altered expression of genes involved in copper metabolism significantly modulates disease progression. Intervention in dietary copper levels also modified Huntington disease phenotypes in the fly and copper reduction decreased the level of oligomerized and aggregated Htt protein. Critically, substitution of two potential copper-binding residues of Htt, Met8 and His82, completely dissociated the copper-intensifying toxicity of Htt exon1-polyQ. The authors specifically identified copper binding compounds as an ideal therapy for Huntington disease. As mentioned above, in relation to our Alzheimer’s disease research, the finding that PBT2 can positively reduce the phosphorylation of tau, supports the emerging profile of PBT2 as a compound with neuroprotective characteristics to support neuronal health and function with potential application in Huntington disease.

 

In 2015, Alterity scientist Associate Professor Kevin Barnham and colleagues published on the ability of PBT2, through its ionophore properties, to inhibit the over-excitation of the glutamate neuronal transmission pathway that can lead to neuronal death in the paper entitled, “PBT2 inhibits glutamate-induced excitotoxicity in neurons through metal-mediated preconditioning” in the journal, Neurobiology of Disease. Such excitotoxicity is implicated in neurodegenerative diseases including Alzheimer disease and Huntington disease.

 

Clinical Trials for Our Product Candidates

 

PBT434

 

Just prior to the end of the last reporting year, we received ethics committee approval for a clinical trial evaluating the safety and pharmacokinetics of PBT434 in healthy volunteers. The Phase 1 study, conducted in Australia, recruited 70 adult volunteers and ten elderly volunteers with the key goals of assessing the safety, tolerability and drug disposition within the body (pharmacokinetics) of PBT434 after single and multiple oral dose administration.

 

The volunteers in the single ascending dose phase of the study, made up of four individual dose levels in ascending order, received a single oral dose of PBT434 and a blood sampling over the next 72 hours. In the multiple ascending dose phase of the study, volunteers received eight days dosing with PBT434, administered as three successively higher dose levels, with intensive blood sampling for pharmacokinetics on days 1 and 8. At the two highest multiple dose levels, cerebrospinal fluid was collected at steady state to determine drug penetration to the site of action in the brain. Elderly participants received the highest dose level for 8 days as well.

 

We announced in July 2019 that the study was successfully completed with systemic exposure to the drug comparable between elderly and healthy volunteers. PBT434 was found to be safe and well tolerated. Adverse event rates were found to be comparable with placebo and no subject experienced a serious adverse event or an adverse event that led to discontinuation of the study drug.

 

The interim clinical data were presented at the American Academy of Neurology Annual Meeting in Philadelphia, USA in May 2019 with plans for the full data to be presented at various scientific conferences in the coming months.

 

We have commenced preparations for further clinical studies targeting MSA.

 

We are focusing on the treatment of Parkinsonian disorders, a group of neurological disorders which have Parkinsonism as a feature. Parkinsonism is a general term for symptoms of slowed of movement, stiffness and tremor, and occurs in idiopathic Parkinson disease and atypical forms such as MSA, Progressive Supranuclear Palsy, among others. The atypical forms of Parkinsonism have a limited response to available drugs for treating symptoms of Parkinson disease. Alterity is targeting MSA, a highly debilitating disease with no approved treatments.

 

MSA is a rapidly progressive neurodegenerative disorder leading to severe disability and impairment in quality of life. It is a sporadic disease (not inherited) and typically presents in 50s to 60s. It is an Orphan disease with a prevalence of approximately 5 per 100,000 in the US. In addition to Parkinsonism as described above, affected individuals experience symptoms of autonomic failure such as orthostatic hypotension, bladder dysfunction, erectile dysfunction and constipation as well as cerebellar impairments such as impaired gait and difficulty speaking and swallowing.

 

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We applied to the FDA for Orphan Drug designation for the proposed use of PBT434 for the treatment of MSA, and the designation was granted in January 2019. Orphan designation entitles Alterity to seven years of market exclusivity for the use of PBT434 in the treatment of MSA and qualifies the sponsor of the drug for various development incentives of the Orphan Drug Act, including tax credits for qualified clinical testing.

 

We have continued to build on our body of scientific evidence for PBT434 drug, with the presentation of pre-clinical evidence of PBT434 treatment for MSA at the International Congress of Parkinson’s Disease and Movement Disorders at Hong Kong in October 2018. The pre-clinical data demonstrated that PBT434 prevented α-synuclein aggregation, preserved neurons, decreased the number of glial cell inclusions and reduced motor impairment in an animal model of MSA. These findings are consistent with previous Parkinsonian disease animal models that have undergone PBT434 treatment.

 

PBT2

 

In November 2005, we successfully completed the first Phase I trial for PBT2, a double blind, placebo-controlled single dose escalation study, conducted on 55 healthy male volunteers between the ages of 18 and 50, which was designed to evaluate the safety, tolerability and pharmacokinetics of PBT2. Data from the study showed that PBT2 was well tolerated with little difference in the incidence of adverse events between those receiving PBT2 and those receiving the placebo. Additionally, the pharmacokinetic analysis demonstrated that the drug exposure increased/decreased predictably and in a linear manner, both of which are desirable characteristics for a central nervous system drug.

 

In February 2006, we completed the second Phase I safety clinical trial for PBT2. This trial was a multi-dose escalation trial of PBT2 conducted in elderly, healthy male and female volunteers completed in December 2005. Volunteers were dosed at a selected dose for seven days; the dose range was from 200mg to 800mg per day. Both Phase I trials demonstrated that PBT2 was well tolerated and suitable for progression to Phase II trials in patients with Alzheimer’s disease.

 

In February 2008, we reported the top line results of our three month double-blind, placebo-controlled safety and tolerability Phase IIa study of PBT2 in 80 elderly male and female patients with mild forms of Alzheimer’s disease. We announced that the trial primary endpoints of safety and tolerability were met and we also announced that with respect to the secondary endpoints, namely biomarker, cognition and behavioral changes, several significant and promising changes were observed. Specifically, that in the cerebrospinal fluid (CSF), PBT2 treatment at a 250mg dose resulted in a significant decrease in the target Abeta 42 protein. In addition, at the 250mg dose, while no significant effect was observed with the ADAS-cog, two of the five NTB tests for improvement in executive function were significantly improved. In July 2008, the results of the Phase IIa trial were published in The Lancet Neurology journal.

 

In November 2009, an erratum to the July 2008 edition of The Lancet Neurology journal was published that corrected the original results of the NTB cognitive findings arising from the Phase IIa trial. The corrected results show that in addition to the two measures of executive cognitive function found to be significantly improved, the overall executive function domain of the NTB, comprising five cognitive tests, was significantly improved for those patients taking 250mg of PBT2 compared to patients on placebo. In April 2010, we published an analysis of the responses of individual patients treated with PBT2 in the Phase IIa clinical trial in the Journal of Alzheimer’s Disease. The analysis demonstrated that there was a significant probability that any patient that showed cognitive executive function improvement in the trial was being treated with 250mg of PBT2. Moreover, 81% of patients on the 250mg dose of PBT2 responded better on the executive function of the NTB score than the best performing patient on placebo. Improvement in ADAS-cog, a measure of memory and cognition, was observed with patients treated with 250mg of PBT2, almost reaching statistical significance by 12 weeks of the Phase IIa trial. The corrected cognitive data from the Phase IIa trial together with the additional analysis provides strong evidence of the ability of PBT2 to improve cognitive executive function as measured by the NTB.

 

Also in November 2009, we presented our pre-clinical and clinical information package on PBT2 to the FDA in accordance with the Pre-Investigational New Drug, or IND, Consultation Program. The meeting provided useful guidance on possible steps to take to open an IND Application with the FDA to undertake clinical trials in the United States in Alzheimer’s disease or Huntington disease. The meeting provided us with important information to help form our regulatory strategy for the development of PBT2 in these neurological indications.

 

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In November 2011, we announced the approval from the Austin Health Research Ethics Committee based at the Austin Hospital in Melbourne, to commence a 12 month Phase II imaging trial with PBT2 in patients with prodromal or mild Alzheimer disease. The study was supported in part by a grant of U.S.$700,000 from the New York based Alzheimer's Drug Discovery Foundation, or ADDF. The trial entailed forty patients treated for twelve months with either 250mg PBT2 or a placebo. The trial was designed to investigate the effect of PBT2 on a patient’s beta amyloid burden in the brain as measured by Positron Emission Tomography imaging (PET), secondary endpoints included brain metabolic activity as measured by F-18-fluorodeoxyglucose, FDG - PET and brain volume by Magnetic Resonance Imaging, or MRI, and safety. No significant changes in the primary endpoint comparing beta amyloid burden as measured using the imaging agent, Pittsburgh compound B (PiB) in the 27 patients treated with 250mg PBT2 compared to the 15 patients on placebo. Confounding interpretation of the result was the observed overall decline in amyloid burden in the placebo group. No improvement was observed for the secondary endpoints including brain metabolic activity, cognitive and functional measures. However, for patients treated with PBT2 there was a trend towards preserving brain volume in the hippocampus compared to those patients on placebo. A key secondary endpoint was the safety profile of PBT2 after 52 weeks treatment – the longest duration of PBT2 exposure to date in a clinical trial. The adverse event profile of the treatment versus placebo group was equivalent and 40 of the 42 enrolled participants completed the 52 week trial. Participants were provided the option to continue treatment on PBT2 for a further 52 weeks in an open label study, the ‘IMAGINE Extension study’ and thirty three participants elected to do so with twenty-seven participants completing the IMAGINE Extension study. The independent Data Safety Monitoring Board did not identify any safety concerns related to PBT2 over the combined two year period of the IMAGINE and IMAGINE Extension studies. Unpublished analysis of the IMAGINE Extension data does not distinguish between 12 and 24 months of exposure to PBT2 on any of the measured trial outcomes. However, exploratory post-hoc information from the Extension phase suggest that for the cohort of 27 trial participants that completed all 24 months (11 of the 15 participants that started IMAGINE on placebo together with 16 of the 25 participants that remained on PBT2 for 24 months), the amyloid levels decreased in this cohort compared to an historical control group from the Australian Imaging Biomarker and Lifestyle (AIBL) study.

 

In late 2012 we finalized the enrolment to a Phase II trial to test PBT2 in patients with Huntington disease over six months. The trial, known as "Reach2HD", was undertaken under an open IND application through the FDA and was conducted in clinical sites across the United States and Australia. The Phase IIa trial design entailed a double blind placebo controlled study of 109 patients with early to mid-stage Huntington disease. The primary objective for the trial was safety and tolerability of PBT2 in this Huntington disease patient population. Secondary endpoints included the effect of PBT2 on cognition, behaviour, functional capacity, motor effects. In addition, a small (n=6) exploratory arm of the study, was undertaken under the guidance of the co-Principal Investigator of the study, Professor Diana Rosas, using MRI brain imaging to undertake iron mapping and volumetric assessment in a patient’s brain. Professor Rosas has published that iron and other metals change in concentration and distribution in the brain with increasing severity of the condition. This study was the first clinical trial with PBT2 in this patient population and the results were reported in February 2014. The primary objective of the study was achieved with PBT2 being demonstrated as safe and well tolerated in this first study of PBT2 in Huntington disease.

 

Cognition was pre-specified as the primary efficacy endpoint and was assessed using three Composite z-scores selected from individual tests; Category Fluency, Trail Making Test Part B, Map Search, Symbol Digit Modalities and Stroop Word Reading. The Main Cognition Composite – comprised of all five tests was not improved with treatment over the six months, nor was the Exploratory Cognition Composite – comprised of all five tests in addition to the Speeded Tapping Test. However, the Executive Function Composite, comprised of the Trail Making Test Part B and Category Fluency Test was significantly improved at 12 weeks (p=0.005) and trended towards improvement at 26 weeks (p=0.069). In the early stage Huntington disease patients, there was a significant improvement in the Executive Function composite (p=0.038). Of particular note, the Trail Making Test Part B of itself was significantly improved at 12 weeks (p=0.001) and at 26 weeks (p=0.042).

 

There were no significant findings in the other secondary endpoints although there was a small but positive signal in the Total Functional Capacity score. Interestingly, while the MRI did not detect changes in brain iron distribution in the study, the rate of brain cortical tissue thinning was greater in the placebo group compared to the two combined PBT2 treatment groups (100mg and 250mg).

 

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In September 2014, we announced that PBT2 had been granted Orphan Drug designation in the treatment of Huntington disease by the FDA. Orphan Drug designation confers a number of incentives to drug developers including increased facilitation of communication with regulators to achieve concurrence on the development of the Orphan drug towards market approval. To achieve Orphan Drug designation, it must be established that the disease indication is of relatively low prevalence, that there is no existing comparable treatment option for patients and that the drug offers a plausible treatment. In June 2015, the European Commission approved Orphan Drug designation for PBT2 for the treatment of Huntington disease, stating that we have shown that PBT2 might be of significant benefit for patients with Huntington disease. The approval was based on the recommendation of a positive opinion from the EMA Committee for Orphan Medicinal Products.

 

During 2015 and 2016, three new PBT2 Phase 1 trials were successfully completed. The data from these trials have provided further safety, pharmacokinetic and pharmacodynamic information on PBT2 and will assist in the design of Phase 3 protocols for PBT2. These Phase 1 studies comprised:

 

A drug to drug interaction study, ‘PBT2-104’. Based on in vitro metabolism studies indicating that PBT2 is both a substrate for, and an inhibitor of, CYP1A2, this study was designed to investigate the potential for drug to drug interactions in healthy volunteers when PBT2 is concurrently administered with other agents metabolized by this CYP450 isozyme. 

 

A food interaction Study, PBT2-103’. Healthy volunteers were randomized into 2 dosing groups; one which was administered 250mg PBT2 after a 12 hour fast, the other which was administered 250mg PBT2 after a prescribed FDA meal. Blood samples were taken over multiple time points over 24 hours to determine the pharmacokinetic profile of PBT2 and its metabolites.

 

Evaluation of the three pharmacokinetic parameters, absorption, metabolism and excretion (ADME) of [C]-PBT2 and to estimate the Absolute Bioavailability of PBT2 in healthy volunteers, ‘PBT2-102’ to understand the passage of the drug in humans after administration.

 

Notwithstanding the clinical safety demonstrated to date with PBT2 in our Phase II programs in Alzheimer’s disease and Huntington disease, in February 2015 we reported that the FDA had placed PBT2 on Partial Clinical Hold, or PCH, based on particular nonclinical neurotoxicology findings in a dog study. These dog findings limit the dose of PBT2 that we can use in future trials. With the assistance of third party specialist pharmacometricians, clinical safety physicians and clinical pharmacologists, we have undertaken extensive safety analyses to characterize the behavior of PBT2 drug exposure in the dog and human and how this translates to the comparative safety profile in the dog relative to humans. Based on the emerging strong safety profile for PBT2, we have prepared a robust safety monitoring plan for future trials in Huntington disease. These plans, the pharmacological evidence and a Phase 3 protocol were submitted to the FDA in 2016 as part of our response to the PCH and to the Swedish Medical Products Agency (MPA) and the United Kingdom’s Medicines and Healthcare Products Regulatory Agency (MHRA) for non-binding scientific advice. The collective response from the FDA and advice from the European regulators was that more characterization of the nature of the dog neurotoxicity findings and its reversibility would be required to support the future development of PBT2 in Huntington disease. We are considering our options to continue development of PBT2, which may include conducting further toxicology studies, investigating the utility of lower doses and/or clinical development of PBT2 in alternative therapeutic indications.

 

Patents and Licenses

 

Patent Matters

 

Patent matters in biotechnology are highly uncertain and involve complex legal and factual questions. Accordingly, the availability and breadth of claims allowed in biotechnology and pharmaceutical patents cannot be predicted. Statutory differences in patentable subject matter may limit the protection we can obtain on some or all of our inventions outside Australia or prevent us from obtaining patent protection outside Australia, either of which could adversely affect our business, financial condition and results of operations. For example, methods of treating humans are not patentable in many countries outside Australia and the United States. Moreover, since patent applications are not published until at least 18 months from their first filing date and the publication of discoveries in the scientific literature often lags behind actual discoveries, we cannot be certain that we or any of our licensors were the first creator of inventions covered by pending patent applications or that we or our licensors were the first to file patent applications for such inventions. Additionally, the grant and enforceability of a patent is dependent on a number of factors that may vary between jurisdictions. These factors may include the novelty of the invention, the requirement that the invention not be obvious in the light of prior art (including prior use or publication of the invention), the utility of the invention, and the extent to which the patent clearly describes the best method of working the invention.

 

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While we intend to seek patent protection for our therapeutic candidate products and technologies, we cannot be certain that any of the pending or future patent applications filed by us or on our behalf will be approved, or that we will develop additional proprietary products or processes that are patentable or that we will be able to license any other patentable products or processes. We also cannot be certain that others will not independently develop similar products or processes, duplicate any of the products or processes developed or being developed by us or licensed to us, or design around the patents owned or licensed by us, or that any patents owned or licensed by us will provide us with competitive advantages. Furthermore, we cannot be certain that patents held by third parties will not prevent the commercialization of products incorporating the technology developed by us or licensed to us, or that third parties will not challenge or seek to narrow, invalidate or circumvent any of the issued, pending or future patents owned or licensed by us.

 

Our commercial success will also depend, in part, on our ability to avoid infringement of patents issued to others. If a court of competent jurisdiction determines that we were infringing any third party patents, we could be required to pay damages, alter our products or processes, obtain licenses or cease certain activities. We cannot be certain that the licenses required under patents held by third parties would be made available on terms acceptable to us or at all. To the extent that we are unable to obtain such licenses, we could be foreclosed from the development, export, manufacture or commercialization of the product requiring such license or encounter delays in product introductions while we attempt to design around such patents, and any of these circumstances could adversely affect our business, financial condition and results of operations.

 

We may have to resort to litigation to enforce any patents issued or licensed to us or to determine the scope and validity of third party proprietary rights. Such litigation could result in substantial costs and diversion of effort by us. We may have to participate in opposition proceedings before the Australian Patent and Trademark Office or another foreign patent office, or in interference proceedings declared by the U.S. Patent and Trademark Office, to determine the priority of invention for patent applications filed by competitors. Any such litigation, interference or opposition proceeding, regardless of outcome, could be expensive and time consuming, and adverse determinations in any such proceedings could prevent us from developing, manufacturing or commercializing our products and could adversely affect our business, financial condition and results of operations.

 

In addition to patent protection, we rely on unpatented trade secrets, know-how and other confidential information as well as proprietary technological innovation and expertise. Although we have taken steps to protect our trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees, consultants and advisers, third parties may still obtain this information or come upon this same or similar information independently.

 

Patent Portfolio

 

We have continued to advance our patents both locally and internationally. Alterity chemists have invented and synthesized a large number of compounds across different chemical groups. Accordingly, in March 2019, we filed a new provisional patent application that exemplifies in excess of 180 novel compounds.

 

Alterity Therapeutics is confident of securing patent claims to both the composition of matter of those compounds as well as to methods of treating diseases with the use of those compounds. New and ongoing biological data will determine our IP strategy going forward into 2020.

 

In the past 12 months Alterity Therapeutics has advanced a number of existing patent families, as described below.

 

First, ‘National Phase’ patent applications has been prosecuted in 12 jurisdictions, including China, Europe, Japan and the USA for the 4H-Pyrido(1,2-a) Pyrimidin-4-one compounds patent family. The majority of these patent cases include claims to metal protein attenuating compounds (MPAC) compositions of matter.

 

Second, Alterity Therapeutics’ patent family entitled “Method of treating immunoglobulin light chain amyloidosis” has progressed to National Phase in Australia, China, Europe, Japan and the USA. This patent family is directed to the use of PBT2 for the treatment of Light Chain Amyloidosis, which is not a neurodegenerative disease.

 

Our ‘granted’ patent that claims 8-hydroxyquinoline compounds including PBT2, confers additional patent protection to the PBT2 therapeutic candidate.

 

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Another five cases are maintained, being directed to several ‘Follow Up’ or next generation MPAC chemical classes, which comprise MPAC scaffolds that are an alternative to the 8-hydroxyquinoline chemical scaffold. Numerous provisional patents remain filed and are directed to proprietary methods of synthesizing key compounds.

 

Patent   Status   Invention
“8-Hydroxyquinoline Derivatives”
Filed: July 16, 2003
Applicant: Prana Biotechnology Limited
  Patents in Europe, the USA, New Zealand, Canada, Japan, Russia, Singapore, South Korea, Australia, Israel, China, Mexico and South Africa have been Granted. A patent in Hong Kong has been registered.   The invention is directed to chemical scaffolds of the 8-Hydroxyquinoline MPAC class and their utility in the treatment of neurological conditions.
         
“Neurologically-Active Compounds”
Filed: October 3 , 2003
Applicant: Prana Biotechnology Limited
  Patents in the USA, New Zealand, Canada, Japan, Mexico, India, Australia, China, South Korea, Japan, Israel, South Africa and Singapore have been Granted. A case has been Granted in Europe and has been validated in separate countries. A patent in Hong Kong has been registered.   The invention is directed to alternative MPAC chemical structures and their utility in the treatment of neurological conditions.
         

“Neurologically- Active Compounds”
Filed: April 1, 2005
Applicant: Prana Biotechnology Limited

  Patents have been Granted in Singapore, Japan, Mexico, Russia, Australia, the USA, China, Canada, Europe, India, Sth Korea, Israel, New Zealand and South Africa. A case has been Granted in Europe and has been validated in separate countries. A patent in Hong Kong has been registered.   The invention is directed to ‘F4’ MPAC chemical structures and their utility in the treatment of neurological conditions and includes Parkinson’s Disease lead compounds.
         
“Method of treatment and prophylaxis and agents useful for same"
Filed: April 13, 2007
Applicant: Prana Biotechnology Limited
  Patents have been Granted in Australia, Singapore, South Africa, Canada, Japan, Israel, China and New Zealand and the USA. A case has been Granted in Europe and has been validated in separate countries. An application is under examination in Brazil.   This invention was originally filed to claim the use of MPAC compounds for the treatment of Age related Macular Degeneration.
         
“A method of prophylaxis or treatment and agents for same”.
Filed: June 22, 2007
Applicant: Prana Biotechnology Limited
  A patent has been Granted in the USA, China, Australia, Canada and Japan. A case has been Granted in Europe and has been validated in separate countries.

  This invention is directed to novel MPAC compounds and compounds for treating certain brain cancers.
         
“Quinazolinone compounds”
Filed: December 24, 2008 Applicant: Prana Biotechnology Limited
  Patents have been Granted in Japan, Australia, Europe and the USA.   This invention is directed to novel MPAC compounds and to selected MPAC’s used in the treatment of Parkinson’s disease. Particularly new 2,3 disubstituted F4 compounds.
         
“4H-Pyrido(1,2-a) Pyrimidin-4-one compounds”
Filed: December 2, 2015
Applicant: Prana Biotechnology Limited
  PCT National phase patent applications has been filed in Australia, Brazil, Canada, China, EA, EU, India, Japan, Malaysia, NZ, Korea and the USA. A case in the USA has proceed to Grant.   This invention is directed to novel MPAC compounds for the treatment of neurodegenerative diseases. Particularly new ‘F3’ compounds.
         
“Method of treating immunoglobulin light chain amyloidosis”
Filed: July 1, 2016
Applicant: Prana Biotechnology Limited
  A PCT patent application has entered National Phase and awaits examination.   This invention is directed to the treatment of light chain amyloidosis with a known compound.
         
“Compounds for Methods of Treating Diseases”
Filed March 15, 2019
Applicant: Prana Biotechnology Limited
  An Australian provisional patent application has been filed.   This invention is directed to novel new compounds and for the treatment of neurodegenerative diseases.

 

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Patent   Status   Invention
“A method of the production of 2-substituted-3H-quinazolin-4-ones-I”
Filed: March 12, 2019
Applicant: Prana Biotechnology Limited
  An Australian provisional application has been refiled.   This invention is directed to synthetic routes for quinazolinone compounds.
         
“A method of the production of 2-substituted-3H-quinazolin-4-ones-II”
Filed: March 12, 2019
Applicant: Prana Biotechnology Limited
  An Australian provisional application has been refiled.   This invention is directed to synthetic routes for quinazolinone compounds.
         
“Processes for the preparation of 8-Hydroxyquinoline Derivatives”
Filed: January 4, 2019
Applicant: Prana Biotechnology Limited
  An Australian provisional application has been refiled.   This invention is directed to synthetic routes for 8-Hydroxyquinoline Derivatives.

 

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On January 1, 2001, we entered into a license agreement with the General Hospital Corporation, or GHC, at Massachusetts General Hospital, under which we licensed certain patents from GHC. The agreement was subsequently amended on August 8, 2001 and March 15, 2004. Under the agreement, as amended, the license for a particular patent expires at the end of the term of the patent rights under the respective patent. In general, the anticipated patent expiration date is 20 years from the filing date of the respective patent application. Under the agreement, we agreed to pay GHC a total of U.S.$166,590 in monthly installments over a 30 month period beginning January 1, 2001 and U.S.$182,000 in monthly installments over a 30 month period beginning August 1, 2001 for the right to use the results of research under the license agreement. Such obligations have been satisfied by us in full, and we hold the rights under the license. We currently retain a license under the agreement with GHC for the patent ‘Neurotoxic Oligomers.’ This international patent application (PCT application) was filed on June 28, 2000 and matured into national phase prosecution in Canada, China, Europe, Japan and the U.S. Patents have been granted in Europe, Canada, China, Australia and New Zealand to both the active vaccines and the use of antibodies as a passive vaccine for Alzheimer’s disease. A patent has also been granted in the United States containing claims to an active vaccine. A further patent has been granted in the United States that contains claims to antibodies as a passive vaccine for Alzheimer’s disease. The patent is expected to expire on June 28, 2020. The invention is directed to a novel target for an Alzheimer’s disease vaccine. The technologies or products that may arise from this invention include toxic dimerized full length or fragments of beta-amyloid as active vaccines for Alzheimer’s disease or antibodies to these beta-amyloid fragments as passive vaccines for Alzheimer’s disease. The license provides for potential payments to GHC of an aggregate U.S.$1.5 million, in accordance with the following milestones: (i) U.S.$500,000 upon the submission of a registration dossier in the United States or Europe; and (ii) U.S.$1.0 million upon the first approval of a product arising from the invention. The milestones have not been met to date.

 

Competition

 

We believe that we will face competition in differing levels of intensity in all of the areas in which we are conducting research. Our competitors, which are located worldwide, are numerous and include, among others, major pharmaceutical companies, biotechnology firms, universities and other research institutions. These competitors may develop technologies and products that are more effective than any that we are developing, or which would render our technology and products obsolete or non-competitive. Many of these competitors have greater financial, research and screening capabilities, technical resources and manufacturing and marketing capabilities than we do. In addition, many of our competitors may have more experience than we do in non-clinical and human clinical trials of new or improved drugs, as well as in obtaining FDA, EMA, TGA and other regulatory approvals.

 

Regulatory Considerations

 

Our ongoing research and development activities are, and the production and marketing of our pharmaceutical product candidates derived from those activities will be, subject to regulation by human research ethics committees and institutional research boards, as well as numerous governmental authorities in Australia, principally the TGA, the FDA in the United States, the MHRA in the United Kingdom and the EMA in Europe. Prior to marketing, any therapeutic product developed must undergo rigorous pre-clinical testing and clinical trials, as well as an extensive regulatory approval process mandated by the TGA and, to the extent that any of our pharmaceutical products under development are marketed abroad, by foreign regulatory agencies, including the FDA, EMA and MHRA.

 

Clinical trials can take many years to complete and require the expenditure of substantial resources. The length of time varies substantially according to the type, complexity, novelty and intended use of the product candidate. We cannot make any assurances that once clinical trials are completed by us or a collaborative partner, we will be able to submit as scheduled a marketing approval request to the applicable governmental regulatory authority, or that such request and application will be reviewed and cleared by such governmental authority in a timely manner, or at all. Although we intend to make use of fast-track and abbreviated regulatory approval programs when possible and commercially appropriate, we cannot be certain that we will be able to obtain the clearances and approvals necessary for clinical testing or for manufacturing and marketing our pharmaceutical products candidates. Delays in obtaining regulatory approvals could adversely affect the development and commercialization of our pharmaceutical product candidates and could adversely impact our business, financial condition and results of operations.

 

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During the course of clinical trials and non-clinical studies, including toxicology studies, product candidates may exhibit unforeseen and unacceptable drug-related toxicities or side effects. If any unacceptable toxicities or side effects were to occur, we may, or regulatory authorities may require us to, interrupt, limit, delay or abort the development of our potential products. In addition, unacceptable toxicities could ultimately prevent the clearance of our product candidates by human research ethics committees, institutional research boards, the TGA, EMA, FDA or other regulatory authority for any or all targeted indications. Even after being cleared by a regulatory authority, any of our products may later be shown to be unsafe or not to have its purported effect, thereby preventing widespread use or requiring withdrawal from the market. We cannot make any assurances that PBT2, PBT434 or any other product candidates will be safe or effective when administered to patients.

 

Manufacturing and Raw Materials

 

The manufacture of pharmaceutical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. We and our contract manufacturers must comply with GMP regulations and guidelines. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up and validating initial production. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. We cannot make any assurances that we will be able to manufacture sufficient quantities of product candidate in a cost-effective or timely manner. Any delays in production would delay our nonclinical and human clinical trials, which could adversely affect our business, financial condition and results of operations. We also cannot make any assurances that we will be able to enter into collaborative or contracting arrangements on acceptable terms with third party manufacturers that will meet our requirements for quality, quantity and timeliness.

 

We expect that we will be required to design and develop new synthetic pathways and formulations for most, if not all, of the products that we currently intend to develop or may develop in the future. We cannot predict the success of such efforts, the purity of the products that may be obtained or the nature of the impurities that may result from such efforts. If we are not able to obtain a suitable formulation or an acceptable purity for any product candidate or an acceptable product specification, nonclinical and clinical trials would be delayed, which could adversely affect the priority of the development of our product candidates, our business, financial condition and results of operations. We cannot guarantee that it will be possible to scale up new synthetic processes or make the necessary validated process improvements to provide sufficient quantities of drug substance for clinical drug trials, which could indefinitely delay the initiation of clinical trials utilizing drug substance. We also cannot guarantee that the drug substance will be suitable for high throughput drug product manufacturing. This may adversely impact the cost of goods or feasibility of market scale manufacture.

 

C.Organizational Structure

 

We have two wholly-owned subsidiaries, Alterity Therapeutics Inc. and Alterity Therapeutics UK Limited, incorporated in the United States and the United Kingdom, respectively.

 

D.Property, Plant and Equipment

 

Our executive offices are located at Level 3, 460 Bourke Street, Melbourne, VIC 3000, Australia, where we occupy approximately 223 square meters. The lease for the facility, which expires on September 17, 2020, has an annual rent of A$75,820. Our United States office is located at Suite 360, 39899 Balentine Drive, Newark, California 94560, USA, where we occupy approximately 911 square feet. The lease for the facility, which expires on October 31, 2019, has an annual rent of US$28,204.

 

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ITEM 4A. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The following discussion and analysis includes certain forward-looking statements with respect to the business, financial condition and results of operations of our company. The words "estimate," "project,” “intend," "expect" and similar expressions are intended to identify forward-looking statements within the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements, including those risk factors contained in Item 3.D. of this annual report. You should read the following discussion and analysis in conjunction with our consolidated financial statements and the notes thereto included in this annual report.

 

A.Operating Results

 

Background

 

We were incorporated under the laws of the Commonwealth of Australia on November 11, 1997. The principal listing of our ordinary shares and listed options to purchase our ordinary shares is on the ASX. From September 5, 2002 until April 8, 2019, our ADSs traded on the NASDAQ Capital Market under the symbol “PRAN”. On April 8, 2019 we changed our name to Alterity Therapeutics Limited and our ADSs have traded under the symbol “ATHE” since that date.

 

Our consolidated financial statements appearing in this annual report comply with both IFRS as issued by IASB. In this annual report, all references to “U.S. dollars” or “U.S.$” are to the currency of the United States, and all references to “Australian dollars” or “A$” are to the currency of Australia. All of our revenues are generated in Australian dollars, except for interest earned on foreign currency bank accounts, and the majority of our expenses are incurred in Australian dollars.

 

Overview

 

We are a development stage enterprise at an early to mid-stage in the development of our pharmaceutical products that are designed to treat the underlying causes of neurodegeneration of the brain. We have incurred net losses since inception and expect to incur substantial and increasing losses for the next several years as we expand our research and development activities and move our product candidates into later stages of development. All of our product candidates are in discovery phase or early and mid-stage of development and we face the risks of failure inherent in developing drugs based on new technologies. The process of carrying out the development of our products to later stages of development may require significant additional research and development expenditures, including nonclinical testing and clinical trials, as well as for obtaining regulatory approval. To date, we have funded our operations primarily through the sale of equity securities, proceeds from the exercise of options, government grants, licensing and research collaborations and interest income.

 

Since completing our initial public offering and listing process on the ASX on March 28, 2000, we have concentrated our resources toward the pursuit of our disease targets. We have completed four Phase I studies of PBT2 and a Phase IIa clinical trial for PBT2 in patients with Alzheimer’s disease. We have completed the “IMAGINE” Phase II biomarker imaging trial in Alzheimer’s disease and a fifty-two week open label IMAGINE Extension study and the “Reach2HD” Phase IIa trial in Huntington disease. We recently completed a Phase I clinical trial of PBT434 in healthy volunteers. For details regarding clinical trials for our lead compound PBT2, see Item 4.B. “Information on the Company - Business Overview - Clinical Trials for Our Product Candidates.”

 

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Critical Accounting Estimates

 

We prepare our financial statements in accordance with IFRS as issued by IASB. As such, we are required to make certain estimates, judgments, and assumptions that management believes are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies listed in Note 1 to the consolidated financial statements that management believes are the most critical to aid in fully understanding and evaluating our financial condition and results of operations under IFRS are discussed below.

 

Going concern basis. The Group is a development stage medical biotechnology company and as such expects to be utilizing cash until its research activities have become marketable. For the year ended June 30, 2019, the Group incurred an operating loss of $12,337,830 (2018: $8,265,737) and an operating cash outflow of $13,894,101 (2018: $6,245,188). As at June 30, 2019, the net assets of the Group stood at $16,554,773 (2018: $16,081,157) and the cash position has decreased to $14,399,904 from $15,235,556 million at 30 June 2018. The Group has recorded a Trade and Other Receivable at June 30, 2019 in the amount of $4,825,270 from the Australian Taxation Office in respect of its 2019 research and development tax incentive claim. The Group expects to receive this amount during the 12 months ended June 30, 2020 and also expects the research and development tax incentive to continue to be applicable in the subsequent years.

 

On April 8, 2019, the Company completed the strategic investment by Life Biosciences LLC ("Life") of an initial US$7.5 million (approximately A$10.526 million) in the Company. The Company also completed a private placement to raise another A$0.9M from sophisticated investors. As part of these transactions, the Company also issued a total of 586,672,964 warrants each with an exercise price of A$0.045 (4.5 cents), vesting on June 8, 2019 and expiring on December 19, 2019, which can potentially raise up to approximately another A$26.4 million upon the holders' election to convert in to the Company's ordinary shares. There is no commitment in this regard.

 

The Directors intend to raise new equity funding within the next twelve months to progress the Group's planned research and clinical expenditure. Notwithstanding these plans, the Directors are confident that the Group has sufficient liquidity with cash and other assets available as at 30 June 2019 to meet its creditors and other commitments. Further, no asset is likely to be realized for an amount less than the amount at which it is recorded in the consolidated statement of financial position as at 30 June 2019.Therefore, no adjustments have been made to the financial report relating to the recoverability and classification of the asset carrying amounts or the classification of liabilities that might be necessary should the Group not continue as a going concern.

 

Research and development payments. Expenditure during the research phase of a project is recognized as an expense when incurred. Where no internally generated intangible assets can be recognized, development expenditure is recognized as an expense in the period as incurred. Development costs are capitalized if and only if, all of the following are demonstrated:

 

the technical feasibility of completing the intangible asset so that it will be available for use or sale;

 

the intention to complete the intangible asset and use or sell it;

 

the ability to use or sell the intangible asset;

 

how the intangible asset will generate probable future economic benefits;

 

the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

 

the ability to measure reliably the expenditure attributable to the intangible asset during its development.

 

Internally-generated intangible assets, capitalized development costs, are stated at cost less accumulated amortization and impairment, and are amortized on a straight-line basis over their useful lives from the point at which the asset is ready for use.

 

Share-based payments. Equity-settled share-based payments granted after November 7, 2002 that were unvested as of January 1, 2005 are measured at fair value at the date of grant. Fair value is measured by use of the Black-Scholes model (for options without market conditions) or the Barrier Pricing model (for options with market conditions). The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. The date used to value share-based payments for non-employees may be different to the grant date used to value employee share-based payments where service conditions apply. The fair value of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period for each tranche of equity, based on our estimate of equity that will eventually vest.

  

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Significant Costs and Expenses

 

Research and development expenses. Our research and development expenses consist primarily of expenses for contracted research and development activities conducted by third parties on our behalf. Research and development expenses also include costs associated with the acquisition, development of patents and salaries and fees paid to employees and consultants involved in research and development activities.

 

General and administration expenses. Our general and administration expenses consist of (i) personnel expenses such as directors’ fees, salaries and benefits paid to employees and officers and equity-based payments awarded to directors, officers and employees; (ii) auditor and accounting expenses which are fees paid to our auditors for services related to annual reports and interim reports filed or submitted in Australia and the United States and fees paid to other accounting firms in respect of tax and other accounting advice; (iii) public relations and marketing expenses which are fees paid to outside consultants for services related to ASX and NASDAQ announcements and presentations; (iv) depreciation expenses; and (v) other administrative and office expenses.

 

Intellectual property expenses. Our intellectual property expenses consist of fees paid to our outside counsel for legal fees associated with patent applications and for the defense of patents.

 

Other gains and losses. Other gains and losses consist of foreign exchange gain (loss) which are the net unrealized gain or loss on cash balances and trade and other payables held in foreign currencies (primarily U.S. dollars, British Pounds and Euros) as well as net realized gains and losses on foreign currency transactions.

 

Results of Operations

 

Year ended June 30, 2019 compared to year ended June 30, 2018

 

Interest income

 

Interest income decreased to A$108,538 for the year ended June 30, 2019 from A$201,174 for the year ended June 30, 2018, a decrease of A$92,636, or 46%. The decrease in interest income is primarily attributable to the lower utilization of longer term interest bearing deposits during the current fiscal year.

 

Other Income

 

We had other income of A$4,951,167 for the year ended June 30, 2019, relating to eligible research and development activities, on which we are entitled to a 43.5% refundable tax offset under an Australian Government tax incentive that was introduced on July 1, 2011. We had other income of A$3,125,775 for the year ended June 30, 2018 relating to eligible research and development activities, on which we were entitled pursuant to the aforementioned Australian Government tax incentive. The increase in the research and development tax incentive is attributable to an increased amount of eligible research and development expenditure.

 

Research and development expenses

 

Our research and development expenses increased to A$12,983,185 for the year ended June 30, 2019 from A$6,698,016 for the year ended June 30, 2018, an increase of A$6,285,169, or 93.8%. The increase is attributable to the increase in activity in relation to the conduct of our Phase 1 study of our lead product candidate PBT434 and other research and development activities.

 

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General and administrative expenses

 

General and administrative expenses decreased slightly to A$4,308,352 for the year ended June 30, 2019 from A$4,341,058 for the year ended June 30, 2018, a decrease of A$32,706, or 0.8 %. The decrease is attributable to reduced head office operating costs.

 

Intellectual property expenses

 

Intellectual property expenses, which include patent portfolio costs and intellectual property related legal costs, increased to A$322,097 for the year ended June 30, 2019 from A$224,580 for the year ended June 30, 2018, an increase of A$97,517, or 43.4%.

 

Foreign exchange gain (loss)

 

We recorded a foreign exchange gain of A$349,064 for the year ended June 30, 2019 compared to a foreign exchange loss of A$270,860 for the year ended June 30, 2018. Foreign exchange gain (loss) reflects the impact of changes in foreign currency exchange rates on cash that we hold in U.S. dollars, British Pounds and Euros. In the 2019 and 2018 fiscal years, the Australian dollar depreciated against the U.S. dollar and Euro, which had a favorable impact on the Australian dollar value of our cash held in U.S. dollars and Euro. In the 2019 and 2018 fiscal years, the Australian dollar appreciated against the British Pound, which had an unfavorable impact on the Australian dollar value of our cash held in British Pound. In the 2019 fiscal year, we incurred a foreign exchange gain of A$403,879 attributable to the cash balances that we held in U.S. dollars, and a foreign exchange gain of A$54,815 attributable to foreign currency transactions. In the 2018 fiscal year, we incurred a foreign exchange gain of A$278,117 attributable to the cash balances that we held in U.S. dollars, a foreign exchange loss of A$7,257 attributable to foreign currency transactions.

 

For a comparison of our results of operations between year ended June 30, 2018 and year ended June 2017, see Item 5.A. “ Results of Operations” of our annual report on Form 20-F as filed on August 31, 2018.

 

Inflation and Seasonality

 

Management believes inflation has not had a material impact on our company’s operations or financial condition and that our operations are not currently subject to seasonal influences.

 

Conditions in Australia

 

We are incorporated under the laws of, and our principal offices and research and development facilities are located in, the Commonwealth of Australia. Therefore, we are directly affected by political and economic conditions in Australia. See Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Location in Australia” for a description of factors that could materially affect our operations.

 

Recently Issued International Accounting Standards and Pronouncements

 

New and amended Accounting Standards and Interpretations issued and effective

 

Effective from July 1, 2018, we adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers in the preparation of the Group’s financial statements. The impact of this adoption and the changes in accounting policies are provided below:

 

Impact on the financial statements - As a result of the changes in the entity’s accounting policies, prior year financial statements have not been restated.

 

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IFRS 9 Financial Instruments - IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.

 

The adoption of IFRS 9 Financial Instruments from 1 July 2018 resulted in changes in accounting policies but no adjustments to the amounts recognised in the consolidated financial statements. The new accounting policies are set out in note 20(k) and below. In accordance with the transitional provisions in IFRS 9(7.2.15) and (7.2.26), comparative figures have not been restated.

 

Classification and measurement

 

On July 1, 2018 (the date of initial application of IFRS 9), the Group’s management has assessed which business models apply to the financial assets held by the Group and has classified its financial instruments into the appropriate IFRS 9 categories. No reclassification was required upon the adoption of IFRS 9.

 

Impairment of financial assets

 

The Group has only one type of financial assets that are subject to IFRS 9’s new expected credit loss model, which is trade and other receivables.

 

The Group was required to revise its impairment methodology under IFRS 9 for each of these classes of assets. The impact of the change in impairment methodology on the Group’s accumulated losses and equity is immaterial.

 

While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.

 

IFRS 15 Revenue from Contracts with Customers - The Group has adopted IFRS 15 Revenue from Contracts with Customers from 1 July 2018 which resulted in changes in accounting policies but no adjustments to the amounts recognised in the consolidated financial statements. As the Group is still in the early stage of research and development for its products, it has neither generated revenue from contracts with customers, nor decided on the revenue strategy (licensing, sale of pharmaceutical products) for when the development phase is completed. Accordingly, the adoption of IFRS 15 has no impact on the financial statements. In prior reporting periods, revenue and other income of the Group primarily comprised of interest income and R&D tax incentive which are not affected by the adoption of IFRS 15.

 

There are no other IFRS or IFRIC interpretations that are effective for the first time for the financial year beginning on or after June 30, 2019 that would be expected to have a material impact on the Company.

 

Accounting Standards issued by not yet effective

 

Certain new accounting standards and interpretations have been published that are not mandatory for June 30, 2019 reporting periods. Initial application of the following Standards and Interpretations are not expected to affect any of the amounts recognized in the financial report, but may change the disclosures presently made in relation to the Company.

 

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Pronouncement

  Title (Issue date)   Effective date   Impact on financial report
IFRS 16   Leases  

Annual periods beginning on or after January 1, 2019

Earlier application is permitted.

 

The group has reviewed all leasing arrangements in light of the new lease accounting rules in IFRS 16. The standard will affect the accounting for the group’s operating leases.

 

As at the reporting date, the group has non-cancellable operating lease commitments of $111,811 see note 13(a).

 

The group expects to recognise right-of-use assets of approximately $101,528 on 1 July 2019 and lease liabilities of $108,525 (after adjustments for prepayments and accrued lease payments recognised as at 30 June 2019). Overall net assets will be approximately $6,914 lower, and net current assets will be $14,293 lower due to the presentation of a portion of the liability as a current liability.

 

The group expects that net loss after tax will increase by approximately $6,238 for the year ended 30 June 2020 as a result of adopting the new rules.

 

Operating cash flows will increase and financing cash flows decrease by approximately $94,857 as repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities.

 

The Group’s activities as a lessor are not material and hence the Group does not expect any significant impact on the consolidated financial statements. However, some additional disclosures will be required from next year.

 

B.Liquidity and Capital Resources

 

We are a development stage company and have had no sales income to date, and as of June 30, 2019, our accumulated deficit totaled A$141,236,838. We had A$ 14,399,904 of cash and cash equivalents as of June 30, 2019, compared to A$ 15,235,556 as of June 30, 2018. From inception until our initial public offering in March 2000 we financed our operations primarily through borrowings from two of our then directors, which were repaid from the proceeds of such offering. Since our initial public offering, we have financed our operations primarily through sales of equity securities, proceeds from the exercise of options, government grants, licensing and research collaborations and interest earned on investments. During the period from 2001 to 2006, we were awarded government grants in the aggregate amount of A$3.3 million.

 

In September 2009, we raised A$6.0 million before costs in a private placement to one of our institutional shareholders in the United States of 30 million ordinary shares (equivalent to 500,000 ADSs on a post reverse ratio basis) at a price of A$0.20 per share (A$12 per ADS on a post reverse ratio basis)). We also agreed to grant the investor, subject to shareholder approval, options to purchase 10 million ordinary shares (equivalent to one million ADSs) at an exercise price of A$0.30 per share (A$18 per ADS on a post reverse ratio basis)) that would expire four years after the date of the issuance of the shares in the September 2013 private placement. We also issued to the investor, based on an agreed upon formula, an additional 750,000 ordinary shares pursuant to the approval of our shareholders obtained in November 2009. For additional information, see Item 10.C. “Additional Information - Material Contracts.”

 

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In July 2010, we raised A$1.15 million (U.S.$1.0 million) before costs in a private placement of 7.065 million of our ordinary shares (equivalent to 117,750 ADSs on a post reverse ratio basis)) to Quintiles, at a price of A$0.1624 per ordinary share (U.S.$9.74 per ADS on a post reverse ratio basis). For additional information, see Item 10.C. “Additional Information - Material Contracts.”

 

On February 21, 2011, the ADDF awarded us a grant of U.S.$700,000, to be provided in two equal instalments over two years. The purpose of the grant was to support a Phase II imaging trial with PBT2 to investigate the effect of PBT2 on the deposition of beta-amyloid in the brains of patients with mild Alzheimer’s disease The ADDF is based in New York and functions on a venture philanthropy model. We issued a convertible promissory note to the ADDF in the principal amount of the grant and a five-year warrant to purchase 612,397 ordinary shares of our company at a price per share of A$0.17 (equivalent to U.S.$0.169), being the closing pricing of our ordinary shares on the ASX on the date of our agreement with ADDF. We also agreed to issue an additional five-year warrant to purchase U.S.$105,000 of our ordinary shares at a price per share equal to the closing price of our ordinary shares on the ASX on the date the second instalment of U.S.$350,000 was paid. The note was due and payable on February 25, 2014. As of June 30, 2014 both instalments totalling U.S.$700,000 were repaid in full.

 

In March 2011, we completed a private placement of our securities to institutional investors for aggregate gross proceeds of approximately A$6.12 million (U.S.$6.19 million). Under the terms of the offering, we sold an aggregate of approximately 27.2 million ordinary shares (equivalent to 453,333ADSs) at a price of A$0.225 per share (A$13.5 per ADS on a post reverse ratio basis). We also granted to the investors options to purchase up to an aggregate of approximately 6.8 million ordinary shares (equivalent to 113,333 ADSs) at an exercise price of A$0.225 per share (A$13.2 per ADS on a post reverse ratio basis). The options are exercisable for a term of four years, and the exercise price is subject to future adjustment for various events, such as stock splits or dividend distributions.

 

In June 2011, we completed a private placement of 5.69 million of our ordinary shares to institutional investors and Quintiles Limited, at a price of A$0.225 per share, for aggregate gross process of approximately A$1.28 million (U.S.$1.4 million). We also granted the investors options to purchase 1.42 million ordinary shares at an exercise price of A$0.225 per share that expired March 24, 2015.

 

In July 2011, we entered into an At-The-Market Issuance Sales Agreement with McNicoll, Lewis & Vlak LLC, now known as MLV & Co. LLC, or MLV, under which we may sell ADSs, each representing sixty ordinary shares, from time to time through MLV, as our agent for the offer and sale of the ADSs. As of June 30, 2017, we issued a total amount of 2,785,221 million ADSs on a post reverse ratio basis under the At-The-Market Issuance Sales Agreement for gross proceeds of A$39.4 million (U.S.$37.0 million).

 

In October 2012, we raised approximately A$6.0 million through a private placement of 32.5 million ordinary shares (equivalent to 0.54 million ADSs on a post reverse ratio basis) at a price of A$0.185 per ordinary share. The capital was raised in order to support our two ongoing Phase II clinical trials, the IMAGINE trial and Reach2HD trial.

 

In March 2013, we completed a private placement of 36.0 million ordinary shares to Australian institutions and high net worth investors, at a price of A$0.195 per share, for aggregate gross proceeds of approximately A$7 million. The proceeds includes A$2 million as part of an underwritten Share Purchase Plan (SPP) under which eligible shareholders were able to apply for up to A$15,000 worth of shares (subject to a scale back) at the same price as the private placement (approximately 76,900 ordinary shares at an issue price of A$0.195 per share, representing a 13.3% discount to the market closing price on the ASX as at the record date). The first A$2 million under the SPP were underwritten by JM Financial Group Ltd.

 

On November 26, 2014 we entered into Amendment No.2 to our At-The-Market Issuance Sales Agreement to continue the at-the-market equity program under which we from time to time may sell up to an aggregate of U.S.$50,000,000 of ordinary shares represented by ADSs. As of June 30, 2016, we sold 749,242 of our ADSs on a post reverse ratio basis for aggregate gross proceeds of approximately A$7.11 million (U.S.$5.54 million) through this facility.

 

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On October 13, 2016, we entered into an At-The-Market Issuance Sales Agreement with FBR Capital Markets & Co. and Jones Trading Institutional Services LLC. On November 8, 2017, we entered into Amendment No. 1 to our At-The-Market Issuance Sales Agreement dated October 13, 2016, to continue the at-the-market equity program under which we from time to time may sell up to an aggregate of U.S.$50,000,000 of ordinary shares represented by ADSs. Since July 1, 2018 and to date, we sold US$ 1,355,474 of additional ordinary shares under this program.

 

On December 28, 2018, we entered into a Securities Purchase Agreement with Life Biosciences whereby Life Biosciences agreed to invest an initial US$7.5 million in our company. Following shareholder approval, this investment was completed on April 8, 2019 with the issuance of 269,905,533 ordinary shares at an issue price of A$0.039 per share and 539,811,066 warrants each with an exercise price of A$0.045 per share and expiring on December 19, 2019.

 

As of June 30, 2019, we had a total of 25.3 million unlisted, unexercised options outstanding. The options have exercise prices ranging from A$0.07 to A$1.12. If all unlisted options were exercised, we would receive consideration of A$3 million in total.

 

From inception to June 30, 2019, our capital expenditures have totaled A$727,644, consisting of computer equipment, furniture and fixtures, fit-out costs and laboratory equipment that is being used in connection with our research at the University of Melbourne. Capital expenditures for equipment are depreciated on a straight-line basis over the estimated useful lives of three to 20 years, with a net balance as of June 30, 2019 of A$ 48,748. We currently do not have significant capital spending requirements, but we expect to continue to engage in capital spending consistent with anticipated growth in our operations and personnel.

 

For the years ended June 30, 2019 and 2018, we incurred operating losses of A$12.3 million and A$8.3 million, respectively, and an operating cash outflow of A$14 million and A$6.2 million, respectively. We believe that our cash and cash equivalents on hand as of June 30, 2019 of A$14,399,904 is sufficient to meet our forecast cash outflows for, at least 12 months from the date of this report.

 

We believe that Australian Government tax incentive scheme relating to eligible research and development activities, introduced on July 1, 2011, will provide us with significant benefits in future years. Such eligible R&D activities include but are not limited to:

 

Core activities, which are experimental activities whose outcome cannot be known or determined in advance, but can only be determined by applying a systematic progression of work;
   
Core activities conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved processes and materials); or
   
Supporting activities that are directly related and designed to support the above).

 

Under the research and development tax incentive scheme, entities with an aggregated turnover for the income year of less than A$20 million will be entitled to a 43.5% refundable tax incentive. In the year ended June 30, 2019, we recorded A$5.0 million in other income with respect to funds we will receive in relation to the 2019 financial year under the research and development tax incentive scheme.

 

In the event that we will not be able to raise the required funding for our planned expenditure, we have the ability to further reduce expenses around our current commitments. We retain the ability to curtail other planned, but not committed expenditure, in order to ensure we continue to have adequate funds to pay all liabilities as and when they fall due.

 

Management remains confident that we will be successful in raising the additional funding required to complete the planned research and development activities and accordingly have prepared the financial statements on a going concern basis. However, we cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts. 

 

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At this time, our directors are of the opinion that no asset is likely to be realized for an amount less than the amount at which it is recorded in the Consolidated Statement of Financial Position as of June 30, 2019. Therefore, no adjustments have been made to our consolidated financial statements relating to the recoverability and classification of the asset carrying amounts or the classification of liabilities that might be necessary should we not continue as a going concern.

 

Cash Flows

 

The following table summarizes our cash flows for the periods presented:

 

   Year ended June 30, 
   2019   2018   2017 
   (A$) 
Net cash (used) in operating activities    (13,954,818)   (6,245,188)   (5,865,080)
Net cash used in investing activities    (7,022)   (18,417)   (27,918)
Net cash generated (used) by financing activities   12,722,309    (107,678)   (159,564)
Net (decrease) in cash and cash equivalents    (1,239,531)   (6,371,284)   (6,052,562)
Cash and cash equivalents at beginning of period    15,235,556    21,884,957    28,593,538 
Redemption of security deposit   -    -    - 
Exchange rate adjustments on cash held in foreign currencies    403,879    (278,118)   (656,019)
Cash and cash equivalents at end of period    14,399,904    15,235,556    21,884,957 

 

Net cash used in operating activities was A$ 13,954,818, A$6,245,188 and A$5,865,080 during the years ended June 30, 2019, 2018 and 2017, respectively. Our payments to suppliers and employees during the years ended June 30, 2019, 2018 and 2017 were A$17,325,579, A$9,466,459 and A$10,766,301, respectively. Our operating activity receipts for the years ended June 30, 2019, 2018 and 2017 of A$3,251,672, A$3,022,673, and A$4,901,221 consisted of R&D tax incentive refunds and interest. The A$7,859,120 increase in payments to suppliers and employees for the year ended June 30, 2019 when compared to the year ended June 30, 2018 reflects the increase in activity at the end of the fiscal year due to the conduct of the Phase 1 study of PBT434 and other research and development activity during the period. The A$1,299,842 decrease in payments to suppliers and employees for the year ended June 30, 2018 when compared to the year ended June 30, 2017 reflects the increase in activity at the end of the fiscal year due to the commencement of the Phase 1 study of PBT434 which is reflected in the increased Trade and Other Liabilities as of June 30, 2018. During the years ended June 30, 2019, 2018 and 2017, our payments to suppliers and employees was offset by interest received of A$ 119,089, A$198,598 and A$147,575, respectively.

 

Net cash used in investing activities was A$7,022, A$18,417 and A$27,918 during the years ended June 30, 2019, 2018 and 2017, respectively. Cash flows used for investing activities was primarily attributable to payments for the purchase of a property and equipment for the years ended June 30, 2019,2018 and 2017.

 

Net cash generated/(used) in financing activities was A$12,722,309, (A$107,679) and (A$159,564) for the years ended June 30, 2019, 2018 and 2017. Cash used by financing activities in the year ended June 30, 2019 and 2018 relate to costs of raising capital under or At-The-Market facility. A$13,084,629 was raised under our At-The-Market facility during the years ended June 30, 2019, A$nil 2018 and A$nil 2017.

 

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We realized foreign exchange gain of A$403,879 for the year ended June 30, 2019 and foreign exchange losses of A$278,118 and A$656,019 respectively the years ended June 30, 2018 and 2017. In 2019, the Australian dollar depreciated against the U.S. dollar by 5.16%. In 2018, the Australian dollar depreciated against the U.S. dollar by 3.61%. In 2017, the Australian dollar depreciated against the U.S. dollar by 4.12%.

 

C. Research and Development, Patents and Licenses

 

In recent years, we have continued our practice of building valuable research collaborations with institutes based in Australia, the United States, the United Kingdom and other countries to enable us to investigate a variety of therapeutic indications including Alzheimer’s disease, Huntington disease, Parkinsonian movement disorders and selected cancers. These collaborative arrangements ensure that we work with well-respected laboratories with specific expertise in screening and animal modelling of relevance to the particular indication, without incurring ongoing administrative and personnel costs. We maintain in-house patent counsel and research and development project expertise to coordinate these research collaborations.

 

When a product candidate is identified as suitable for clinical development, we establish a project team to coordinate all non-clinical and clinical development and manufacturing activities. Typically, we engage a clinical research organization to manage patient enrollment, data management, clinical site coordination and statistical analysis, as was the case with the development of our lead compound PBT2 through Phase I and II development and prospectively for Phase III. We manage our manufacturing campaigns through clinical manufacturing organizations for quality assurance and GMP compliance. All clinical, non-clinical, clinical development and manufacturing of our compounds is performed in compliance with the appropriate governing authorities, regulators and standards (for example, the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use).

 

Our research and development expenses consist primarily of expenses for contracted research and development activities conducted by third parties on our behalf, including personnel, testing facilities and other payments in accordance with our research and clinical agreements. Research and development expenses also include costs associated with the acquisition and development of patents. Due to the numerous variables and the uncertain nature of the development of a clinical compound, including obtaining regulatory approvals, we are not able to reasonably estimate the nature, timing and costs of the future expenditures necessary to complete our research and development projects, the anticipated completion dates of each project and when material net cash flows from our research and development programs will commence.

 

Our technology does not require the licensing of enabling technology licenses or freedom to operate licenses. Our product candidates are designed and synthesized by our employees and the intellectual property of such product candidates is owned by us.

 

D. Trend Information

 

We are a development stage company and while we believe that our technology will offer novel therapeutic strategies into an expanding market, we cannot predict with any degree of accuracy the outcome of our research or commercialization efforts.

 

We have not commercialized any products to date. Accordingly, any trends within the markets in which we operate are expected to have more direct impact on our business in the event that we are successful in commercializing our product candidates, including PBT2, PBT434 and new candidate products.

 

Over the past few years, there has been increasing pressure to reduce drug prices in the developed markets as a consequence of political initiatives and regulations aiming to curb continuous increases in healthcare spending. Any revenue we earn in the future may be negatively affected by such political initiatives and regulations. The increased burden of healthcare costs in the aging population have led to an increased focus on reducing costs and, therefore, have further increased the pressure to lower drug prices. We expect this trend to continue in the years ahead. However, we believe spending in the healthcare industry, as compared to many other industries, is less linked to economic trends. We expect sales growth to continue at higher levels in emerging markets and also for niche, orphan indications. We also expect that demographic developments, increased treatment penetration, especially in newly established drug markets, and better diagnostic tools to enable the tailoring of drugs to specific needs, will result in continuing growth in overall global drug sales.

 

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We will need substantial additional funding in order to complete the development, testing and commercialization of our product candidates. The commitment to these projects will require additional external funding, at least until we are able to generate sufficient cash flow from sale of one or more of our products to support our continued operations. If adequate funding is not available, we may be required to delay, scale back or eliminate certain aspects of our operations or attempt to obtain funds through unfavorable arrangements with partners or others that may force us to relinquish rights to certain of our technologies, products or potential markets or that could impose onerous financial or other terms. Management is continuing its efforts to obtain additional funds so that we can meet our obligations and sustain operations.

 

E. Off-balance Sheet Arrangements

 

We are not a party to any material off-balance sheet arrangements. In addition, we have no unconsolidated special purpose financing or partnership entities that are likely to create material contingent obligations.

 

f.Tabular Disclosure of Contractual Obligations

 

The following table summarizes our minimum contractual obligations as of June 30, 2019. The majority of our contracts for research and development programs have a termination notice period of 30 days. As of June 30, 2019, we had research and development termination commitments approximating A$2.3 million. No liability has been recognised within our financial statements for this period. In addition, we have the ability to scale down our operations and prioritize our research and development programs to reduce expenditures as discussed in Item 5.B. Liquidity and Capital Resources.

 

Contractual Obligations  Payments due by period 
   Total  

less than

1 year

   1-3 years   3-5 Years  

more than

5 years

 
Operating lease obligations    111,811    94,726    17,085    -    - 
Total    111,811    94,726    17,085    -    - 

 

ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A.Directors and Senior Management

 

Our directors and executive officers are as follows:

 

Name   Age   Position
Geoffrey P. Kempler   64   Chairman of the Board of Directors and Chief Executive Officer
Kathryn J.E. Andrews   52   Chief Financial Officer
David A. Stamler   58   Chief Medical Officer and Senior Vice President Clinical Development
Lawrence B. Gozlan   40   Director
Peter A. Marks(1) (2)   63   Director
Brian D. Meltzer(1)(2)   65   Director
David A. Sinclair   50   Director
Tristan Edwards   44   Director

 

 

(1)Member of the Audit Committee
(2)Member of the Remuneration Committee and Share Plan Committee

 

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Mr. Geoffrey Paul Kempler has served as Chairman of our Board of Directors since November 1997, between November 1997 and August 2004 he served as our Chief Executive Officer, and in June 2005 he again assumed the position of Chief Executive Officer. Mr Kempler is one of the founders of the Group. Mr Kempler is a qualified psychologist. Mr Kempler, who has extensive experience in investment and business development, has been responsible for the implementation of our strategic plan and the commercialisation of our technology.

 

Ms. Kathryn Andrews was appointed as Chief Financial Officer of our company on November 4, 2014. From December 2012 to October 2014 Ms. Andrews held a senior role with The CFO Solution, a firm focused on the listed company and life sciences environments. Between 2007 and 2012 Ms. Andrews provided contract accounting, governance and consulting services to various mining and government organizations. Between 2002 and 2006 Ms. Andrews was the Chief Financial Officer and Company Secretary of Antisense Therapeutics Limited. Between 1999 and 2002 Ms. Andrews provided contract accounting and consulting services to various mining and resources, technology and government organizations. Between 1989 and 1998 Ms. Andrews was employed by Rio Tinto Limited in a variety of accounting, auditing and financial management roles. Between 1985 and 1989 Ms. Andrews was employed by BP Australia Limited in an accounting role. Ms. Andrews is a Certified Practicing Accountant and holds a Bachelor of Commerce from the University of Melbourne.

 

Dr. David Stamler has served as our Chief Medical Officer and Senior Vice President, Clinical Development since May 2017. Prior to joining Alterity, Dr. Stamler served as the Vice President, Clinical Development and Therapeutic Head for Movement Disorders at Teva Pharmaceutical Industries, from 2015 to 2017. Dr. Stamler was the Chief Medical officer of Auspex Pharmaceuticals from January 2011 until 2015 when Teva acquired Auspex. Prior to that, Dr. Stamler served as Senior Vice President and Chief Medical Officer at XenoPort, Inc., a publicly-traded biopharmaceutical company, from 2008 to 2010 and Chief Scientific Officer and Head of Drug Development at Prestwick Pharmaceuticals, Inc., a private pharmaceutical company, from 2005 to 2008. Prior to Prestwick Pharmaceuticals, Inc., Dr. Stamler worked at Fujisawa Pharmaceutical Co. and its subsidiaries from 1997 to 2005, in various leadership roles, including Vice President, Research and Development, Medical Sciences at Fujisawa Healthcare, Inc. from 2003 to 2005 and as Vice President, Clinical Research Center at Fujisawa Research Institute of America from 2000 to 2003. Dr. Stamler began his career at Abbott Laboratories, a publicly-traded global pharmaceuticals and healthcare products company, where he served in various positions from 1993 to 1997, including Director of Clinical Research, Pharmaceutical Products for the International Division. Dr. Stamler received an M.D. from the University of Chicago—The Pritzker School of Medicine and a B.A. in Biology from the University of Chicago.

 

Mr. Lawrence Gozlan has served as a director of our company since August 2011. Mr. Gozlan, a leading biotechnology investor and advisor, is the Chief Investment Officer and Founder of Scientia Capital, a specialized global investment fund focused exclusively in life sciences. Scientia Capital was founded to provide high level expertise and to manage investments for high net worth individuals, family offices and institutional investors wanting exposure to the biotechnology industry. Prior to this, Mr. Gozlan was responsible for the largest biotechnology investment portfolio in Australia as the institutional biotechnology analyst at QIC (“the Queensland Investment Corporation”), an investment fund with over A$60 billion under management. He previously worked as the senior biotechnology analyst in the equities team at Foster Stockbroking Pty Ltd, and gained senior corporate finance experience advising life sciences companies at Deloitte. Mr. Gozlan is currently a Director of AusBiotech, which is the Australian Biotechnology Industry body and a number of private biotechnology companies in the USA. He holds a Bachelor of Science with Honors in microbiology and immunology from the University of Melbourne specializing in neurodegenerative diseases.

 

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Mr. Peter Marks has served as a director of our company since July 2005. During the period November 21, 2006 to October 20, 2011, Mr. Marks also served as Executive Chairman of iSonea Ltd, formerly KarmelSonix Ltd, a medical devices company listed on the ASX that was focused on developing and commercializing a range of devices in the respiratory and medicine space. For over 13 years until the end of August 2014, Mr. Marks was a Director of Peregrine Corporate Ltd, an Australian-based investment bank. Mr. Marks was until late 2016, a Director of Armadale Capital Plc (formerly Watermark Global Plc), an AIM listed investment company, focused on natural resources projects based principally in Africa with its current major investments being a gold exploration company in DRC and a coal briquetting operation in South Africa. Mr. Marks is currently a Principal of Henslow Pty Ltd (formerly Halcyon Corporate Pty Ltd), a corporate and capital markets advisory firm specializing in advising small to mid-cap companies. Mr. Marks is a non-executive Director of Fluence Corporation Ltd. (formerly Emefcy Group Limited and prior to that Savcor Group Limited), an ASX listed municipal & industrial waste water technology business. Mr. Marks is also a non-executive director of Terragenic International Ltd, (renamed to Electriq~Global Ltd) an unlisted public company developing a novel hydrogen fuel system. He also currently serves as Director of ASX listed biotech company, Noxopharm Ltd. which is progressing a clinical program in using chemical sensitisers to enhance the effectiveness of existing chemotherapy drugs and radiation therapies and a Director of Noxopharm subsidiary, Nyrada Inc, which is developing several pre-clinical non-oncology projects. From September 1998 until March 2001, Mr. Marks was employed by KPMG Corporate Finance Ltd (Australia), where he rose to Director and was responsible for heading up the equity capital markets group in Melbourne. From January 1992 until July 1994, Mr. Marks served as Head of the Melbourne Companies Department at the ASX and was founding Director of Momentum Funds Management Pty Ltd, an Australian venture capital firm. From December 1990 until December 1991, Mr. Marks served as Director of Corporate Finance at Burdett Buckeridge & Young Ltd in their Melbourne offices, from August 1988 until November 1990, he held senior corporate finance position at Barings Securities Ltd, and from July 1985 until July 1988, he served as an Associate Director of McIntosh Securities, now Merrill Lynch Australia. In his roles with these various financial institutions, Mr. Marks was responsible for advising a substantial number of listed and unlisted companies on issues ranging from corporate and company structure, to valuation, business strategies, acquisitions and international opportunities. Mr. Marks holds a Bachelor of Economics degree, a Bachelor of Law degree and Graduate Diploma in Commercial Law from Monash University in Melbourne, Australia, and an MBA degree from the Scottish School of Business at the University of Edinburgh.

 

Mr. Brian Derek Meltzer has served as a director of our company since December 1999. Subsequent to several years as Chief Economist of ICI Australia (now Orica), Mr Meltzer spent 25 years in investment banking. His breadth of expertise includes major property transactions, corporate advisory, corporate finance, management buyouts, venture capital and large-scale syndications. He has held a number of Board and Board Advisory roles for private companies in the human resources, health, aged care, software, entertainment and finance sectors, including Director of a federal government licensed Innovation Investment Fund and co-founder of OSA Group, a provider of mental health services to corporates. Mr Meltzer is also a Director of the Australia-Israel Chamber of Commerce, Chairman of Independence Australia and Chairman of a privately-owned corporate health business.

 

Mr. Tristan Edwards was appointed as a director on April 8, 2019. He is the co-founder of Life Biosciences LLC and served as President and CEO from January 2016 until April 2019 and since that time serves as President and Chief Investment Officer. From January to December 2015 Mr Edwards worked as a consultant to various private equity and venture capital groups, including BlueSky in Australia. From January 2012 to October 2014 Mr Edward served as Chief Investment Officer and Chairman of Mosaic Asset Management. Mr Edwards has extensive global financial capital markets, regulatory compliance, and fiduciary oversight experience, following a 16-year investment career spanning leading financial organizations across Australia, London, HK and Singapore. His professional background has been in senior investment roles at leading financial groups such as Goldman Sachs, Brevan Howard, Trafalgar Capital and Mosaic Asset Management. He started his career as an analyst with the Australian Commonwealth Department of Finance. Tristan has a degree in Commerce from the University of Tasmania, and held the CFA, CMT and CPA designations.

 

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Dr. David Andrew Sinclair was appointed as a director on April 8, 2019. He is the co-founder and Chairman of Life Biosciences LLC. He was recruited to Harvard Medical School in 1999 and is a tenured professor in the Department of Genetics and a co-director of the Paul F. Glenn Center for the Biology of Aging Research and serves on the non-profit boards of the American Federation for Aging Research and the Sanford Lorraine Cross Award. Dr. Sinclair is regarded as one of the world’s leading researchers on aging and age-associated diseases, with key contributions to understanding why we age and how to slow and even reverse the process. He has co-founded multiple biotechnology and genomics companies working on aging, neurological, metabolic, infectious and rare diseases. He has received more than 35 awards for his medical research, innovation, and teaching. In 2014, he was named in TIME Magazine’s “100 Most Influential People in the World” and in 2018 was named in TIME Magazine’s “50 Most Influential People in Health Care”. In 2018 Dr Sinclair was appointed an Officer of the Order of Australia for “distinguished service to medical research into the biology of aging and lifespan extension, as a geneticist and academic, to biosecurity initiatives, and as an advocate for the study of science”.

 

There are no family relationships among our directors and senior executives.

 

b.Compensation

 

The following table sets forth all compensation we paid for the year ended June 30, 2019 with respect to each of our executive officers and directors during the 2019 fiscal year.

 

   Salaries, fees,
commissions,
bonuses and other
   Pension, retirement and other similar
benefits
 
Geoffrey P. Kempler (1)  A$395,728   A$28,325 
Kathryn Andrews (1)   236,665    35,753 
David A. Stamler   547,622    - 
Peter A. Marks   60,000    - 
Brian D. Meltzer   80,000    - 
George W. Mihaly (3)   66,667    - 
Lawrence B. Gozlan (2)   580,000    - 
Ira Shoulson (3)   78,757    - 
David A. Sinclair (3)   10,750    - 
Tristan Edwards (3)   10,750    - 
All executive officers and directors as a group (10 persons)  A$2,066,939   A$64,078 

 

 

(1)Base Fee includes movements in annual leave provision for Mr. Kempler, Mr. Stamler and Ms. Andrews accrued in accordance with their employment contracts.

(2) Includes fees paid to an associated entity of Mr. Lawrence Gozlan in the amount of $520,000 for corporate advisory services including seeking and advancing opportunities to expand the company’s product pipeline and other sources of funding to commence and continue the company’s clinical trials.

(3)On April 8, 2019, Ira Shoulson and George Mihaly resigned from the Board and David A. Sinclair and Tristan Edwards were appointed to the Board.

 

In accordance with the approval of our shareholders at our 2004 annual general meeting of shareholders, the aggregate amount available per annum for the remuneration of our non-executive directors for their services (payable in cash, ordinary shares or options) is A$1,250,000.

 

As of June 30, 2019, our directors and executive officers as a group, then consisting of eight persons, held options to purchase 14,500,000 of our ordinary shares. Of such options, (i) options to purchase 4,500,000 ordinary shares exercisable for A$0.07 consideration on or before June 6, 2022; and (ii) options to purchase 10,000,000 ordinary shares exercisable for A$0.11 consideration on or before December 14, 2022. All such options were granted under our 2004 Employees’, Directors’ and Consultants’ Share and Option Plan. See Item 6.E. “Directors, Senior Management and Employees - Share Ownership – Stock Option Plans.”

 

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Agreement with Chief Executive Officer. On September 21, 2007, we entered into an agreement with Mr. Geoffrey Kempler, a director, in connection with his employment as our Chief Executive Officer. Under the agreement, we agreed to pay Mr. Kempler a base salary of A$386,400 per annum (which may be increased at the discretion of our Board of Directors). Mr. Kempler is entitled to a bonus of A$6,000 for holding regular meetings (minimum twice a year) of the full Research and Development Advisory Board. Mr. Kempler is entitled to up to 20 days’ vacation a year (vacation days that are not used in any calendar year will be carried over for use in the following year to a maximum carry-over of two years) and reimbursement of reasonable business expenses incurred in the performance of his duties. Mr. Kempler is also entitled to participate in the employee benefits established by our company, as applicable to executives, including, without limitation, a Section 401(k) retirement plan, health, dental, life insurance and short and long term disability plans. The agreement contains customary confidentiality provisions.

 

In the event of termination of Mr. Kempler’s employment:

 

By our company without cause (as defined in the agreement) or by Mr. Kempler with good reason (as defined in the agreement), he will be entitled to: (i) the sum of A$1 million provided we have sufficient capital requirements to fulfill this obligation within 90 days of termination date; (ii) business expenses that have not been reimbursed and accrued and unused vacation days; and (iii) the acceleration of the vesting of any unvested options to purchase ordinary shares which may be purchased during the remainder of the exercise period of such options.

 

By our company with cause (as defined in the agreement) or by Mr. Kempler without good reason (as defined in the agreement), he will be entitled to business expenses that have not been reimbursed and accrued and unused vacation days. Mr. Kempler will only be permitted to exercise unvested options to purchase shares that had been granted to him prior to the employment agreement.

 

Due to death or disability (as defined in the agreement), we shall pay Mr. Kempler or his estate, as applicable, all accrued base salary, pro-rata bonus, business expenses that have not been reimbursed and accrued, unused vacation days (and in the case of disability, less such amounts under any disability policy maintained by our company). Mr. Kempler or his estate, as applicable, will be entitled to exercise vested options for ordinary shares.

 

Agreement with Chief Financial Officer. On 11 November 2014, we entered into an agreement with Ms. Kathryn Andrews in connection with her employment as our Chief Financial Officer. In the event of termination of Ms. Andrews’s employment:

 

By our company without cause (as defined in the agreement) or by Ms. Andrews, a 30 day notice period is required. Ms. Andrews will be (i) entitled to business expenses that have not been reimbursed and accrued and unused leave entitlements; and (ii) must exercise unexercised options within 30 days after the date of termination.

 

By our company with cause (as defined in the agreement), no notice period is required. Ms. Andrews will be entitled to business expenses that have not been reimbursed and accrued and unused leave entitlements. Ms. Andrews will be (i) entitled to business expenses that have not been reimbursed and accrued and unused leave entitlements; and (ii) must exercise unexercised options within 30 days after the date of termination.

 

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Agreement with Chief Medical Officer and Senior Vice President, Clinical Development. On 18 April 2017, we entered into an agreement with Dr. David Stamler in connection with his employment as our Chief Medical Officer and Senior Vice President, Clinical Development. In the event of termination of Dr. Stamler’s employment:

 

By our company without cause (as defined in the agreement) or by Dr. Stamler with good reason, a 3-month notice period is required, increasing to a 6-month notice period after 18 months of employment. Dr. Stamler will be entitled to (i) an amount equal to seventy-five percent of his current annualized salary; (ii) business expenses that have not been reimbursed and accrued and unused leave entitlements; and (iii) must exercise unexercised options within 30 days after the date of termination.

 

By our company with cause (as defined in the agreement), no notice period is required. Dr. Stamler will be (i) entitled to business expenses that have not been reimbursed and accrued and unused leave entitlements; and (ii) must exercise unexercised options within 30 days after the date of termination.

 

C.Board Practices

 

Introduction

 

Our Board of Directors is elected by and accountable to our shareholders. Our Board of Directors’ responsibilities are divided into operating activities, financial and capital markets activities and scientific activities. The Chairman of our Board of Directors, currently Mr. Geoffrey Kempler, is responsible for the management of the Board of Directors and its functions.

 

Election of Directors

 

Directors are elected at our annual general meeting of shareholders. Under our Constitution, the term of office of our directors are staggered, such that at every annual general meeting of shareholders one-third, rounded down to the nearest whole number, of the directors, except a Managing Director, must retire from office and may offer himself/herself for re-election. No director, except a Managing Director, shall retain office for a period in excess of three years without submitting for re-election. Our Board of Directors has the power to appoint any person to be a director, either to fill a vacancy or as an additional director (provided that the total number of directors does not exceed the maximum allowed by law), and any director so appointed may hold office only until the next annual general meeting when he or she shall be eligible for election. Mr. Kempler is our Managing Director. Mr. Meltzer must retire and may stand for re-election at our 2019 annual general meeting of shareholders.

 

Non-Executive and Independent Directors

 

Australian law does not require a company to appoint a certain number of independent directors to its board of directors or audit committee.

 

Under the rules of the NASDAQ Stock Market, a majority of our Board of Directors must qualify as independent directors within the meaning of the rules of the NASDAQ Stock Market, each of whom satisfies the respective “independence” requirements of the NASDAQ Stock Market Rules and the Securities and Exchange Commission. Our Board of Directors has determined that each of Messrs. Peter Marks and Brian Meltzer qualifies as an independent director under the NASDAQ Stock Market and the Securities and Exchange Commission. As a foreign private issuer whose shares are listed on The NASDAQ Capital Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of The NASDAQ Stock Market Rules. This includes NASDAQ rule 5605(b)(1) requiring a majority of independent directors.

 

Committees of the Board of Directors

 

Our Board of Directors has established the following committees:

 

Audit Committee. The NASDAQ Stock Market rules require us to establish an audit committee comprised of at least three members, each of whom is financially literate and satisfies the respective “independence” requirements of the Securities and Exchange Commission and NASDAQ and one of whom has accounting or related financial management expertise at senior levels within a company. As a foreign private issuer whose shares are listed on The NASDAQ Capital Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of The NASDAQ Stock Market Rules. This includes the Rule related to Audit Committee Composition rule 5605(c)(2)(A)): we may have an audit committee composed of two members instead of “at least three members”.

 

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Our Audit Committee assists our Board of Directors in overseeing the accounting and financial reporting processes of our company and audits of our financial statements, including the integrity of our financial statements, compliance with legal and regulatory requirements, our independent public accountants’ qualifications and independence, the performance of our internal audit function and independent public accountants, and such other duties as may be directed by our Board of Directors. The Audit Committee is also required to assess risk management. The audit committee meets at least four times per year.

 

Our Audit Committee currently consists of two board members, each of whom satisfies the “independence” requirements of the Securities and Exchange Commission and the NASDAQ Market Rules. Our Audit Committee is currently composed of Messrs. Marks and Meltzer.

 

Remuneration Committee. Our Board of Directors has established a Remuneration Committee, which is comprised solely of independent directors, within the meaning of the NASDAQ Stock Market Rules. The Remuneration Committee is responsible for reviewing the salary, incentives and other benefits of our executive officers and to make recommendations on such matters for approval by our Board of Directors. The Remuneration Committee is also responsible for overseeing and advising our Board of Directors with regard to the adoption of policies that govern our compensation programs, including share and ADS option and employee benefit plans. Additionally, the Remuneration Committee administers our share and ADS option plans and any other employee benefit plans through a sub-committee that it established for this purpose (see Share Plan Committee below). Messrs. Marks and Meltzer are the current members of the Remuneration Committee, each of whom qualifies as an “independent director” within the meaning of the NASDAQ Stock Market Rules.

 

Share Plan Committee. Our Remuneration Committee has established a sub-committee, the Share Plan Committee, which administers our share and ADS option plans. Messrs. Marks and Meltzer are the current members of the Share Plan Committee, each of whom qualifies as an “independent director” within the meaning of the NASDAQ Stock Market Rules.

 

Research and Development Advisory Board. Our Research and Development Advisory Board oversees and administers our research activities. Our Research and Development Advisory Board is comprised of a number of the leading scientists in the field of age-related degenerative disorders. The members of our Research and Development Advisory Board are as follows:

 

Dr. Ira Shoulson is the Chairman of our Research and Development Advisory Board. He is currently adjunct professor of Neurology at Georgetown University (Washington, DC) and the University of Rochester (Rochester, NY). From 2011 to present, Dr Shoulson was Professor of Neurology, Pharmacology and Human Science and Director of the Program for Regulatory Science and Medicine (PRSM) at Georgetown University where he was principal investigator of the FDA-Georgetown University Collaborating Center of Excellence in Regulatory Science and Innovation. From 1990 to 2011, Dr Shoulson was the Louis C. Lasagna Professor of Experimental Therapeutics and Professor of Neurology, Pharmacology and Medicine at the University of Rochester School of Medicine & Dentistry in Rochester, New York. Dr. Shoulson founded the Parkinson Study Group (1985) and the Huntington Study Group (1994), international academic consortia devoted to research and development of treatments for Parkinson’s Disease, Huntington Disease and related neurodegenerative and neurogenetic disorders. He has served as principal investigator of the National Institutes of Health-sponsored trials "Deprenyl and Tocopherol Antioxidative Therapy of Parkinsonism" (DATATOP), the “Prospective Huntington At Risk Observational Study” (PHAROS), and in the leadership of more than 40 other multi-center clinical research studies. He played an instrumental role in the development of 10 new drugs for neurological disorders, including for Parkinson disease (selegiline, lazabemide, pramipexole, entacapone, clozapine, rasagiline, rotigitine), Huntington disease (tetrabenazine, dutetetrabenazine) and attention deficit disorder (Concerta). He was formerly a health policy fellow in the US Senate, a member of the National Institute of Neurological Disorders and Stroke Council, president of the American Society for Experimental NeuroTherapeutics (ASENT), and associate editor of JAMA Neurology. He has authored more than 220 scientific reports.

 

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Professor Colin Masters is the Executive Director of the Mental Health Research Institute (Australia) and a Laureate Professor at The University of Melbourne. He is also the Senior Deputy Director of the Florey Institute of Neuroscience and Mental Health. For more than 30 years, Professor Masters has dedicated his research to the study of the nature of Alzheimer’s disease and other neurodegenerative disorders. Professor Masters and his team are internationally renowned for their work on the disease and he is considered the most eminent neuroscientist in Australia. In addition, Professor Masters is regarded as one of the leading worldwide researchers in the study of Alzheimer’s disease. In 2006, Professor Masters was awarded the Lifetime Achievement Award in Alzheimer‘s Disease Research at the 10th International Conference on Alzheimer‘s disease (ICAD), the Lennox K. Black International Prize for Excellence in Biomedical Research and the Grand Hamdan International Award for a research breakthrough in the subject of Molecular and Cellular Pathology of Neurological Disorders.

 

Professor Rudolph Emile Tanzi is the Joseph P. and Rose F. Kennedy Professor of Neurology at Harvard Medical School and Director of Genetics and the Aging Research Unit at MGH. Professor Tanzi co-discovered three of the four known Alzheimer’s disease genes and contributed greatly to elucidating the molecular mechanisms by which they cause of Alzheimer’s disease. Professor Tanzi’s laboratory at MGH is one of the leaders in the field. Professor Tanzi conceived the “Metal Hypothesis of Alzheimer's disease” with Professor Ashley Bush, and over the past 15 years has helped guide the design and development of our platform technology. In January 2012, Professor Tanzi was appointed our Chief Scientific Advisor.

 

Directors’ Service Contracts

 

Except for the agreement with Mr. Kempler in connection with his employment as our Chief Executive Officer, as described above, there are no arrangements or understandings between us and any of our subsidiaries, on the one hand, and any of our directors, on the other hand, providing for benefits upon termination of their employment or service as directors of our company or any of our subsidiaries.

 

Indemnification of Directors and Officers

 

Our Constitution provides that, subject to the Australian Corporations Act, every director, secretary, manager or officer of our company or any person employed by our company as auditor shall be indemnified out of our funds against all liability incurred by such person as a director or officer in defending proceedings, whether civil or criminal, in which judgment is given in the persons favor or in which the person is acquitted in connection with any application under the Australian Corporations Act in which relief is granted to the person by a Court.

 

Under our Constitution no director, auditor or other officer shall be liable for (i) any acts, receipts, neglect or defaults of any other director or officer for joining in any receipt or other act for conformity; (ii) any loss or expense that may happen to us through the inefficiency or deficiency of title to any property acquired by order of the directors or on our behalf; (iii) the inefficiency or deficiency of any security in or upon which any of our monies shall be invested; (iv) any loss or damage arising from bankruptcy, insolvency or tortuous act of any person with whom any monies, securities or effects shall be deposited; (v) any loss occasioned by any error of judgment, omission, default or oversight on the persons part; or (vi) any other loss damage or misfortune whatsoever which shall happen in relation to those things unless the same shall happen through the persons own negligence, default, breach or duty, breach of trust or dishonesty.

 

In addition, our Constitution provides that to the extent permitted by law, we may pay, or agree to pay, a premium in respect of a contract insuring a person who is or has been an officer of our company or one of our subsidiaries against a liability:

 

incurred by the person in his or her capacity as an officer of our company or a subsidiary of our company provided that the liability does not arise out of a conduct involving a willful breach of duty in relation to our company or a subsidiary of our company; or

 

for costs and expenses incurred by that person defending proceedings, whatever their outcome.

 

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We maintain a directors’ and officers’ liability insurance policy. We have established a policy for the indemnification of our directors and officers against certain liabilities incurred as a director or officer, including costs and expenses associated in successfully defending legal proceedings.

 

D.Employees

 

As of June 30, 2019, we have 14 employees. Of such employees, nine persons are employed in research and development and five persons in management and administration. Ten employees are located in Australia and four employees are located in the United States.

 

As of June 30, 2018, we had 14 employees. Of such employees, nine persons were employed in research and development and five persons in management and administration. Ten employees were located in Australia and four employees were located in the United States.

 

As of June 30, 2017, we had 13 employees. Of such employees, eight persons were employed in research and development, four persons in management and administration and one person in operations. Eleven employees were located in Australia and two employees were located in the United States.

 

Australian and US labor laws and regulations apply to our employees accordingly. The laws concern various matters, including severance pay rights at termination, retirement or death, length of work day and work week, minimum wage, overtime payments and insurance for work-related accidents.

 

E.Share Ownership

 

Beneficial Ownership of Executive Officers and Directors

 

The following table sets forth certain information as of August 30, 2019 regarding the beneficial ownership of our ordinary shares by each of our directors and executive officers and by all our directors and executive officers as a group:

 

Name 

Number of Ordinary Shares Beneficially Owned (1)

  

 

Percentage of Ownership (2)

 
Geoffrey P. Kempler (3)    23,011,000    2.57%
Kathryn J.E. Andrews (4)    500,000    * 

David Stamler (5)       

   4,000,000    * 
Lawrence B. Gozlan (6)    1,250,000    * 
Peter A. Marks (7)    1,293,111    * 
Brian D. Meltzer (8)    1,576,666    * 
David A. Sinclair (9)    -    * 

Tristan Edwards (9)

   -    * 
All directors and executive officers as a group (8 persons)    31,630,777    3.54%

 

 

 

*Less than 1%

 

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1.Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, and generally includes voting or investment power with respect to securities. Ordinary shares relating to options currently exercisable or exercisable within 60 days of the date of the above table are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.

 

2.The percentages shown are based on 894,099,492 consisting of 868,799,492 ordinary shares and 25,300,000 unlisted options, issued and outstanding as of August 30, 2019.

 

3.Includes options to purchase 5,000,000 ordinary shares that are exercisable for A$0.11 consideration on or before December 14, 2022. Of the 18,011,000 outstanding ordinary shares, 30,000 ordinary shares are held of record by Mr. Kempler, 14,165,000 ordinary shares are held by Baywick Pty Ltd., an Australian corporation owned by Mr. Kempler, 156,000 ordinary shares are held by Sadarajak Pty Ltd., an Australian corporation owned by Mr. Kempler, 90,000 ordinary shares are held of record by Crystal Triangle Pty Ltd., an Australian corporation owned by Mr. Kempler and 2,970,000 ordinary shares are held of record by NRB Developments Pty Ltd., an Australian corporation in which Mr. Kempler holds a 50% interest, 600,000 ordinary shares are held of record by Sandhurst Trustees Ltd. Mr. Kempler may be deemed to be the beneficial owner of the ordinary shares held of record by Baywick Pty Ltd., Crystal Triangle Pty Ltd., NRB Developments Pty Ltd. and Sandhurst Trustees Ltd.

 

4.Includes options to purchase 500,000 ordinary shares that are exercisable for A$0.07 consideration on or before 6 June 2022.

 

5.Includes options to purchase 4,000,000 ordinary shares that are exercisable for A$0.07 consideration on or before June 6, 2022.

 

6.Includes options to purchase 1,250,000 ordinary shares that are exercisable for A$0.11 consideration on or before December 14, 2022.

 

7.Includes options to purchase 1,250,000 ordinary shares that are exercisable for A$0.11 consideration on or before December 14, 2022. The 43,111 outstanding ordinary shares are held of record by Lampam Pty Ltd., an Australian corporation owned by Mr. Peter Marks.

 

8.Includes options to purchase 1,250,000 ordinary shares that are exercisable for A$0.11 consideration on or before December 14, 2022. The 326,666 outstanding ordinary shares are held of record by Navigator Australia Ltd., a superannuation fund of Mr. Meltzer.

 

9.Mr. Edwards is President and Mr. Sinclair is Chairman of Life Biosciences LLC, the beneficial owner of 809,716,599 ordinary shares, representing approximately 57.81% of the outstanding ordinary shares.

 

Stock Option Plans

 

In November 2004, we adopted the 2004 Employees’, Directors’ and Consultants’ Share and Option Plan, or the 2004 ASX Plan, and the 2004 American Depository Share (ADS) Option Plan, or the 2004 ADS Plan. In November 2018 we adopted an updated ADS plan with substantially the same terms as the 2004 ADS Plan for a new ten-year term. For the description below, the 2004 ASX Plan and 2018 ADS Plan are referred to together as the Stock Option Plans. Under the 2004 ASX Plan we may issue ordinary shares and under the 2018 ADS Plan we may issue ADSs. We were initially authorized to issue under the Stock Option Plans up to an aggregate 12,000,000 ordinary shares or ADSs representing 12,000,000 ordinary shares. Pursuant to subsequent shareholder approvals, the most recent of which was in November 2015, we are entitled to issue up to an aggregate 60,000,000 ordinary shares (or ADSs representing 60,000,000 ordinary shares) under the Stock Option Plans. Any increase in such maximum number of ordinary shares or ADSs issuable under the Stock Option Plans is subject to shareholder approval.

 

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2004 ASX Plan. The purpose of the 2004 ASX Plan is to promote the interest of our company and the interest of the employees, directors and consultants of our company and its subsidiaries. Under the 2004 ASX Plan, we may issue to employees, directors and consultants of our company and its subsidiaries, from time to time, ordinary shares, either by issuance of ordinary shares or under options to purchase ordinary shares granted under the 2004 ASX Plan.

 

The 2004 ASX Plan is administered by the Share Plan Committee, a sub-committee of the Remuneration Committee. For the purpose of the disclosure below, the term “Remuneration Committee” shall refer to the Remuneration Committee or Share Plan Committee, as applicable. Subject to Board approval where required by applicable law, the Remuneration Committee has the authority, in its sole discretion, to grant options under the 2004 ASX Plan, to interpret the provisions of the 2004 ASX Plan and to prescribe, amend, and rescind rules and regulations relating to the 2004 ASX Plan or any issue or grant thereunder as it may deem necessary or advisable, subject to any other approval if required by applicable law. All decisions made by the Remuneration Committee pursuant to the provisions of the 2004 ASX Plan will be final, conclusive and binding on all persons.

 

The number of shares issued or options granted, the exercise price and option term or options granted, the vesting schedule and escrow periods of shares issued and options granted, under the 2004 ASX Plan are determined by the Remuneration Committee, in accordance with the provisions of the ASX Plan, and specified in an offer document from our company and accepted by the eligible person, subject to the terms of the 2004 ASX Plan. Options granted under the 2004 ASX Plan will be unlisted and exercisable at an exercise price equal to less than market value of an ordinary share on the ASX at the date of grant, or such other exercise price that the Remuneration Committee determines to be appropriate under the circumstances. The term of an option granted under the 2004 ASX Plan will be determined by the Remuneration Committee; however, no option will be exercisable after the expiration of ten years from the date of its grant. Except as otherwise provided in the 2004 ASX Plan or determined by the Remuneration Committee and set forth in an offer document, the issuance of shares and exercise of options granted under the 2004 ASX Plan will either (i) be subject to an escrow, under which such shares or options cannot be disposed of or exercised, respectively, within six months from the date of issue or grant (or 12 months if issued or granted to a director); or (ii) will vest over a four year period in four equal installments, 25% at the end of each year from the date of grant. Shares issued and options granted under the 2004 ASX Plan may be subject to other performance criteria and hurdles, as determined by the Remuneration Committee.

 

2018 ADS Plan. The purpose of the 2018 ADS Plan is to promote the interests of our company and non-Australian based employees, officers, consultants, independent contractors and directors. Options granted under the 2018 ADS Plan may be incentive stock options, as provided in Section 422 of the Internal Revenue Code of 1986, as amended, or the Code, or non-qualified stock options. Incentive stock options may only be granted to employees of our company and its subsidiaries (including, without limitation, officers and directors who are also employees of our company and its subsidiaries) and may not be granted to any owner of 10% or more of the total combined voting power of all classes of stock of our company and subsidiaries, or a 10% Holder. To the extent that the aggregate fair market value, determined on the date that an option is granted, of ADSs, with respect to which incentive stock options are exercisable for the first time by an optionee during any calendar year exceeds U.S.$100,000, such option shall be treated as a non-qualified stock option.

 

Under the 2018 ADS Plan, we may grant to employees, officers, consultants, independent contractors and directors of our company or any of its subsidiaries, from time to time, options to purchase ADSs representing our ordinary shares. ADSs that are forfeited under the terms of the 2018 ADS Plan and ADSs that are the subject to options that expire unexercised or which are otherwise surrendered by an optionee without receiving any payment or other benefit with respect to such option may again become available for new option grants under the 2018 ADS Plan.

 

The 2018 ADS Plan is administered by our Share Plan Committee. Subject to Board approval where required by applicable law, the Remuneration Committee has authority, in its sole discretion, to grant options under the 2018 ADS Plan, to interpret the provisions of the 2018 ADS Plan and to prescribe, amend, and rescind rules and regulations relating to the 2018 ADS Plan or any options granted thereunder as it may deem necessary or advisable, subject to any other approval if required by applicable law. All decisions made by the Remuneration Committee pursuant to the provisions of the 2018 ADS Plan shall be final, conclusive and binding on all persons.

 

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The type of option (incentive stock option or non-qualified stock option), exercise price, option term and vesting schedule of options granted under the 2018 ADS Plan are determined by the Remuneration Committee, in accordance with the provisions of the ADS Plan, and specified in an option agreement by and between our company and the optionee, subject to the terms of the 2018 ADS Plan. The exercise price per each ADS will be determined by the Remuneration Committee at the time any option is granted, however the exercise price of an incentive stock option will not be less than 100% of the fair market value of such ADS on the date of the grant and the price of an incentive stock option granted to a 10% Holder will not be less than 110% of the fair market value of such ADS on the date of the grant. Options granted under the 2018 ADS Plan will not be exercisable after the expiration of ten years from the date of grant, and in the case of an incentive stock option granted to a 10% Holder, the term of the option will be five years from the date of grant or such shorter term as may be provided in the option agreement. The options will vest over a four-year period in four equal installments, 25% at the end of each year from the date of grant, unless otherwise provided by the Remuneration Committee in an option agreement.

 

Options granted under the 2018 ADS Plan are not assignable or transferable by the grantee, other than by will or the laws of descent and distribution, and may be exercised during the lifetime of the grantee only by the grantee or his guardian or legal representative.

 

A summary of the status of the Stock Option Plans as of June 30, 2018, 2017 and 2016, and changes during the years ended on those dates, is presented below:

 

   As of June 30, 
   2019   2018   2017 
   Amount   Weighted
average
exercise
price
   Amount   Weighted
average
exercise
price
   Amount   Weighted
average
exercise
price
 
Options outstanding at the beginning of the year   25,216,490    0.19    26,826,063   $0.29    19,395,582   $0.38 
Granted   2,450,000   $0.10    12,100,000   $0.11    8,550,000   $0.07 
Exercised                              
Expired   (2,366,490)  $0.87    (11,349,573)  $0.31    (1,119,519)  $0.25 
Lapsed   -    -    (2,360,000)  $0.31           
Options outstanding at the end of the year   25,300,000   $0.12    25,216,490   $0.19    26,826,063   $0.29 
Options exercisable at the end of the year   25,300,000   $0.12    25,216,490   $0.19    26,826,063   $0.29 
                               
Options that may be granted as of the end of the year   25,300,000   $0.12    25,216,490   $0.19    26,826,063      

 

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ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A.Major Shareholders

 

Pursuant to a securities purchase agreement dated December 28, 2018, Life Biosciences acquired on April 8, 2019, 269,905,533 ordinary shares and warrants to purchase up to 539,811,066 ordinary shares upon the closing of the private placement of our securities. The warrants expire on December 19, 2019. Life Biosciences has nominated two persons, who have been elected to our board of directors. Life Biosciences has the right to nominate up to three persons to our board of directors for so long as it holds at least 20% of our outstanding shares.

 

Life Biosciences is currently the beneficial owner of 809,716,599 ordinary shares (includes the ordinary shares issuable upon exercise of the warrants), representing approximately 57.81% of the ordinary shares outstanding on April 9, 2019. Life Biosciences’s principal address is 75 Park Plaza, Level Three, Boston, MA 02116.

 

There are no other shareholders as of August 30, 2019, known to us who own beneficially more than 5% of our ordinary shares.

 

Significant Changes in the Ownership of Major Shareholders

 

Other than the Life Biosciences’ change of control, there have been no other significant changes in the ownership of major shareholders during the year.

 

Major Shareholders Voting Rights

 

A major shareholder would not have different voting rights.

 

Record Holders

 

As of August 27, 2019, there were 2961 holders of record of our ordinary shares, of which 22 record holders, holding approximately 79.99% of our ordinary shares, had registered addresses in the United States. These numbers are not representative of the number of beneficial holders of our shares nor are they representative of where such beneficial holders reside, since many of these ordinary shares were held of record by brokers or other nominees. The majority of trading by our U.S. investors is done by means of ADSs that are held of record by HSBC Custody Nominees Ltd., which held 47.58% of our ordinary shares as of such date.

 

As of August 27, 2018, there were 2,986 holders of record of our ordinary shares, of which 20 record holders, holding approximately 74.12% of our ordinary shares, had registered addresses in the United States. These numbers are not representative of the number of beneficial holders of our shares nor are they representative of where such beneficial holders reside, since many of these ordinary shares were held of record by brokers or other nominees. The majority of trading by our U.S. investors is done by means of ADSs that are held of record by HSBC Custody Nominees Ltd., which held 72.61% of our ordinary shares as of such date.

 

B.Related Party Transactions

 

During the year ended 30 June 2019 the Group paid a total of $520,000 (exc GST) in corporate advisory fees to Montoya Pty Ltd, an associated entity of Mr. Lawrence Gozlan, a Non-Executive Director of the Group. Corporate advisory services included seeking and advancing opportunities to expand the company’s product pipeline and other sources of funding to commence and continue the company’s clinical trials. No outstanding balance remained unpaid as at 30 June 2019.

 

There were no other related party transactions other than those related to Director and Key Management Personnel remuneration.

 

C.Interests of Experts and Counsel

 

Not applicable.

 

ITEM 8.FINANCIAL INFORMATION

 

A.Financial Statements and Other Financial Information

 

See our consolidated financial statements, including the notes thereto, in Item 18.

 

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Legal Proceedings

 

We are not involved in any legal proceedings nor are we subject to any threatened litigation that is material to our business or financial condition.

 

Dividend Distribution Policy

 

We have never paid cash dividends to our shareholders. We intend to retain future earnings for use in our business and do not anticipate paying cash dividends on our ordinary shares in the foreseeable future. Any future dividend policy will be determined by the Board of Directors and will be based upon various factors, including our results of operations, financial condition, current and anticipated cash needs, future prospects, contractual restrictions and other factors as the Board of Directors may deem relevant.

 

B.Significant Changes

 

There have been no significant changes in the operation or financial condition of our company since June 30, 2019.

 

ITEM 9.THE offer and listing

 

A.Offer and Listing Details

 

Australian Securities Exchange

 

Our ordinary shares have traded on the ASX since our initial public offering on March 29, 2000 under the symbol “PBT”. On April 8, 2019 we changed our name to Alterity Therapeutics Limited and our ADSs have traded under the symbol “ATH” since that date.

 

NASDAQ Capital Market

 

On September 5, 2002 our ADSs began trading on the NASDAQ Capital Market under the symbol “PRAN.” On April 8, 2019 we changed our name to Alterity Therapeutics Limited and our ADSs have traded under the symbol “ATHE” since that date.

 

B.Plan of Distribution

 

Not applicable.

 

C.Markets

 

The principal listing of our ordinary shares and listed options to purchase ordinary shares is on the ASX. As of April 5, 2002, our ADSs were eligible to trade on the NASDAQ Capital OTC Bulletin Board in the United States and until September 5, 2002, our ADSs traded on the NASDAQ Capital Market under the symbol “PRAN.” On April 8, 2019 we changed our name to Alterity Therapeutics Limited and our ADSs have traded under the symbol “ATHE” since that date. We entered into a Deposit Agreement with the Bank of New York under which the Bank of New York, acting as depositary, issues ADRs. Prior to March 24, 2016, each of ADR represented ten of our ordinary shares. On March 24, 2016, we effected a ratio change so that each ADS now represents 60 ordinary shares (representing a 6-for-1 reverse split).

 

D.Selling Shareholders

 

Not applicable.

 

E.Dilution

 

Not applicable.

 

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F.Expenses of the Issue

 

Not applicable.

 

ITEM 10.ADDITIONAL INFORMATION

 

A.Share Capital

 

Not applicable.

 

B.Memorandum and Articles of Association

 

We were registered on November 11, 1997 as Prana Pty Ltd and on November 26, 1999 we converted to a public company and changed our name to Prana Corporation Ltd. On January 1, 2000, we changed our name to Prana Biotechnology Limited. On April 8, 2019 we changed our name to Alterity Therapeutics Limited. Our registration number is ACN 080699065.

 

Alterity’s Purposes and Objects

 

As a public company we have all the rights, powers and privileges of a natural person. Our Constitution does not specify any purposes or objects.

 

The Powers of the Directors

 

Under the provisions of our Constitution our directors may exercise all of the powers of our company, other than those that are required by our Constitution or the Corporations Act of Australia to be exercised at a general meeting of shareholders. A director may participate in a meeting and vote on a proposal, arrangement or contract in which he or she is materially interested, so long as the director’s interest is declared in accordance with the Corporations Act. The authority of our directors to enter into borrowing arrangements on our behalf is not limited, except in the same manner as any other transaction by us.

 

Rights Attached to Our Ordinary Shares

 

The concept of authorized share capital no longer exists in Australia and as a result, our authorized share capital is unlimited. All our outstanding ordinary shares are validly issued, fully paid and non-assessable. The rights attached to our ordinary shares are as follows:

 

Dividend rights. If our board of directors recommends a dividend, registered holders of our ordinary shares may declare a dividend by ordinary resolution in a general meeting. The dividend, however, cannot exceed the amount recommended by our board of directors. Our board of directors may declare an interim dividend.

 

Voting rights. Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.

 

The quorum required for an ordinary meeting of shareholders consists of at least two shareholders represented in person or by proxy who hold or represent, in the aggregate, at least one third of the voting rights of the issued share capital. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or any time and place as the directors designate in a notice to the shareholders. At the reconvened meeting, the required quorum consists of any two members present in person or by proxy.

 

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An ordinary resolution, such as a resolution for the declaration of dividends, requires approval by the holders of a majority of the voting rights represented at the meeting, in person, by proxy or by written ballot and voting thereon. Under our Constitution, a special resolution, such as amending our Constitution, approving any change in capitalization, winding-up, authorization of a class of shares with special rights, or other changes as specified in our Constitution, requires approval of a special majority, representing the holders of no less than 75% of the voting rights represented at the meeting in person, by proxy or by written ballot, and voting thereon.

 

Pursuant to our Constitution, our directors are elected at our annual general meeting of shareholders by a vote of the holders of a majority of the voting power represented and voting at such meeting.

 

Rights in our profits. Our shareholders have the right to share in our profits distributed as a dividend and any other permitted distribution.

 

Rights in the event of liquidation. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to the nominal value of their holdings. This right may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.

 

Changing Rights Attached to Shares

 

According to our Constitution, in order to change the rights attached to any class of shares, unless otherwise provided by the terms of the class, such change must be adopted by a general meeting of the shareholders and by a separate general meeting of the holders of the affected class with a majority of 75% of the voting power participating in such meeting.

 

Annual and Extraordinary Meetings

 

Our Board of Directors must convene an annual meeting of shareholders at least once every calendar year, within five months of our last fiscal year-end balance sheet date. Notice of at least 28 days prior to the date of the meeting is required. An extraordinary meeting may be convened by the board of directors, it decides or upon a demand of any directors, or of one or more shareholders holding in the aggregate at least five percent of our issued capital. An extraordinary meeting must be called not more than 21 days after the request is made. The meeting must be held not later than two months after the request is given.

 

Limitations on the Rights to Own Securities in Our Company

 

Neither our Constitution nor the laws of the Commonwealth of Australia restrict in any way the ownership or voting of our shares. However, (i) there are certain limitations on the percentage of shares a person may hold in our company as described under Item 3.D. “Risk Factors – “Risks Relating to our Location in Australia” above; and (ii) acquisitions and proposed acquisitions of securities in Australian companies may be subject to review and approval by the Australian Federal Treasurer under the Takeovers Act as described under Item 10.D. “Additional Information – Exchange Controls” above.

 

Changes in Our Capital

 

Pursuant to the Listing Rules of the ASX, without shareholder approval, we may not issue more than 25% of our outstanding ordinary shares in any twelve month period other than by a pro rata rights offering or a share purchase plan offer (of shares with a value at the issue price of up to A$15,000 per shareholder to a maximum of 30% of our outstanding shares) in each case to the then existing shareholders. .

 

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C.Material Contracts

 

On December 1, 2000, we entered into a research funding and intellectual property assignment agreement with the University of Melbourne, under which the University of Melbourne agreed to conduct certain research projects on our behalf. Such projects include structure-based drug design involving the design of various metal-based compounds as potential diagnostics and therapeutics, drug screening and development involving the characterization of our compounds in vitro and in vivo models of neurodegenerative disorders, and cell-based drug discovery involving the screening and assessment of our compounds in cell-based systems to measure toxicity and cellular dysfunction and to develop new screens for our company. In consideration of such services, we agreed to pay the University of Melbourne a sum of A$591,000 (inclusive of goods and services tax). In consideration for the assignment of rights to intellectual property developed by the University of Melbourne during the research period, we agreed to pay to the University of Melbourne royalties equal to 1.5% of the net invoice price of all products incorporating such intellectual property sold by us or on our behalf, or, the lesser of 1.5% of the net invoice price of such products sold by a licensee or assignee and 10% of gross revenues received from licensees or assignees relating to the exploitation of such intellectual property. The parties extended the term of this agreement by entering into consecutive agreements on December 1, 2003, December 1, 2006 and December 1, 2009. The recent research funding and intellectual property assignment agreement is deemed to have commenced as of the expiration date of the previous agreement on December 1, 2009 and expired on December 1, 2012. The parties entered into a new research funding and intellectual property assignment agreement with the same key terms which expired on December 31, 2013. The University of Melbourne subcontracted substantial parts of the research to the Florey Institute of Neuroscience and Mental Health. Following the novation of the agreements with the Florey Institute on November 7, 2014, we entered into a sixth research funding and intellectual property assignment agreement. This agreement is ongoing.

 

On October 13, 2016, we entered into an At-The-Market Issuance Sales Agreement with FBR Capital Markets & Co. and JonesTrading Institutional Services LLC (collectively, the “Agents”) under which we could sell up to an aggregate of $US44,460,787 of ordinary shares represented by ADSs. We agreed to pay the Agents commission equal to 3% of the gross proceeds of the sales price of all ADSs sold through them as sales agent under the sales agreement. The offering of our ADSs pursuant to the sales agreement will terminate on the earliest of (1) the sale of all of the ordinary shares subject to the sales agreement, or (2) termination of the sales agreement by us or the agent. We and the agent may terminate the sales agreement at any time in our sole discretion upon five days prior notice. The agent may terminate the sales agreement at any time in certain circumstances, including the occurrence of a material adverse change that, in the sales agent’s judgment, may make it impracticable or inadvisable to market or sell our ADSs or a suspension or limitation of trading of our ADSs on The NASDAQ Capital Market.

 

On November 8, 2017, we entered into Amendment No. 1 to our At-The-Market Issuance Sales Agreement dated October 13, 2016, to continue the at-the-market equity program under which we from time to time may sell up to an aggregate of U.S.$50,000,000 of ordinary shares represented by ADSs. As of June 30, 2019, we issued a total amount of 4.5 million ADSs under this At-The-Market Issuance Sales Agreement for gross proceeds of A$7.11 million (U.S.$5.54 million).

 

On December 28, 2018 we entered into a Securities Purchase Agreement with Life Biosciences whereby Life Biosciences agreed to invest an initial US$7.5 million in our company. Following shareholder approval, this investment was completed on April 8, 2019 with the issue of 269,905,533 fully paid ordinary shares at an issue price of A$0.039 per share and 539,811,066 warrants, each with an exercise price of A$0.045 per share and expiring on December 19, 2019.

 

D.Exchange Controls

 

Australia has largely abolished exchange controls on investment transactions. The Australian dollar is freely convertible into U.S. dollars. In addition, there are currently no specific rules or limitations regarding the export from Australia of profits, dividends, capital, or similar funds belonging to foreign investors, except that certain payments to non-residents must be reported to the Australian Cash Transaction Reports Agency, which monitors such transactions, and amounts on account of potential Australian tax liabilities may be required to be withheld unless a relevant taxation treaty can be shown to apply.

 

The Foreign Acquisitions and Takeovers Act 1975

 

Under Australian law, in certain circumstances foreign persons are prohibited from acquiring more than a limited percentage of the shares in an Australian company without notification to or approval from the Australian Treasurer. These limitations are set forth in the Australian Foreign Acquisitions and Takeovers Act, or the Takeovers Act.

 

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Under the Takeovers Act, as currently in effect, any foreign person, together with associates, is prohibited from acquiring 15% or more of the shares in any company having total assets exceeding A$266 million or more. In addition, a foreign person may not acquire shares in a company having total assets of A$266 million or more if, as a result of that acquisition, the total holdings of all foreign persons and their associates will exceed 40% in aggregate without the approval of the Australian Treasurer. However, for “U.S. Investors” and investors from certain other countries, a threshold of A$1,154 million applies (except in certain circumstances) to each of the previous acquisitions. A “U.S. Investor” is defined by the Takeovers Act as a U.S. national or a U.S. enterprise.

 

If the necessary approvals are not obtained, the Treasurer may make an order requiring the acquirer to dispose of the shares it has acquired within a specified period of time. Under the current Australian foreign investment policy, however, it is unlikely that the Treasurer would make such an order where the level of foreign ownership exceeds 40% in the ordinary course of trading, unless the Treasurer finds that the acquisition is contrary to the national interest. The same rule applies if the total holdings of all foreign persons and their associates already exceeds 40% and a foreign person (or its associate) acquires any further shares, including in the course of trading in the secondary market of the ADSs. At present, we do not have total assets of A$266 million.

 

If the level of foreign ownership exceeds 40% at any time, we would be considered a foreign person under the Takeovers Act. In such event, we would be required to obtain the approval of the Treasurer for our company, together with our associates, to acquire (i) more than 15% of an Australian company or business with assets totaling over A$252 million; or (ii) any direct or indirect ownership interest in Australian residential real estate.

 

The percentage of foreign ownership in our company would also be included in determining the foreign ownership of any Australian company or business in which it may choose to invest. Since we have no current plans for any such acquisitions and do not own any property, any such approvals required to be obtained by us as a foreign person under the Takeovers Act will not affect our current or future ownership or lease of property in Australia.

 

Our Constitution does not contain any additional limitations on a non-resident’s right to hold or vote our securities.

 

Australian law requires the transfer of shares in our company to be made in writing. No stamp duty will be payable in Australia on the transfer of ADSs.

 

E.Taxation

 

The following is a discussion of Australian and U.S. tax consequences material to our shareholders. To the extent that the discussion is based on tax legislation which has not been subject to judicial or administrative interpretation, the views expressed in the discussion might not be accepted by the tax authorities in question or by court. The discussion is not intended, and should not be construed, as legal or professional tax advice and does not exhaust all possible tax considerations.

 

Holders of our ADSs should consult their own tax advisors as to the United States, Australian or other tax consequences of the purchase, ownership and disposition of ADSs, including, in particular, the effect of any foreign, state or local taxes.

 

AUSTRALIAN TAX CONSEQUENCES

 

In this section we discuss the material Australian tax considerations that apply to non-Australian tax residents with respect to the acquisition, ownership and disposal of the absolute beneficial ownership of ADSs, which are evidenced by ADRs. This discussion is based upon existing Australian tax law as of the date of this annual report, which is subject to change, possibly retrospectively. This discussion does not address all aspects of Australian income tax law which may be important to particular investors in light of their individual investment circumstances, such as ADSs or shares held by investors subject to special tax rules (for example, financial institutions, insurance companies or tax exempt organizations). In addition, this summary does not discuss any foreign or state tax considerations, other than stamp duty. Prospective investors are urged to consult their tax advisors regarding the Australian and foreign income and other tax considerations of the purchase, ownership and disposition of the ADSs or shares.

 

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Nature of ADSs for Australian Taxation Purposes

 

Holders of our ADSs are treated as the owners of the underlying ordinary shares for Australian income tax and capital gains tax purposes. Therefore, dividends paid on the underlying ordinary shares will be treated for Australian tax purposes as if they were paid directly to the owners of ADSs, and the disposal of ADSs will be treated for Australian tax purposes as the disposal of the underlying ordinary shares. In the following analysis we discuss the application of the Australian income tax and capital gains tax rules to non-Australian resident holders of ADSs.

 

Taxation of Dividends

 

Australia operates a dividend imputation system under which dividends may be declared to be ‘franked’ to the extent of tax paid on company profits.  Fully franked dividends are not subject to dividend withholding tax.  Dividends that are not franked or are partly franked and are paid to non-Australian resident shareholders are subject to dividend withholding tax, but only to the extent the dividends are not franked. 

 

Unfranked dividends paid to a non-resident shareholder are subject to withholding tax at 30%, unless the shareholder is a resident of a country with which Australia has a double taxation agreement.  In accordance with the provisions of the Double Taxation Convention between Australia and the United States., the maximum rate of Australian tax on unfranked dividends to which a resident of the United States is beneficially entitled is 15%, where the U.S. resident holds less than 10% of the voting rights in our company, or 5% where the U.S. resident holds 10% or more of the voting rights in our company.  The Double Taxation Convention between Australia and the United States does not apply to limit the tax rate on dividends where the ADSs are effectively connected to a permanent establishment or a fixed base carried on by the owner of the ADSs in Australia through which the shareholder carries on business or provides independent personal services, respectively.

 

Tax on Sales or other Dispositions of Shares - Capital Gains Tax

 

Australian capital gains derived by non-Australian residents in respect of the disposal of capital assets that are not taxable Australian property will be disregarded.  Non-Australian resident shareholders will not be subject to Australian capital gains tax on the capital gain made on a disposal of our shares, unless they, together with associates, hold 10% or more of our issued capital, tested either at the time of disposal or over any continuous 12 month period in the 24 months prior to disposal, and the value of our shares at the time of disposal are wholly or principally attributable to Australian real property assets. 

 

Australian capital gains tax applies to net capital gains at a taxpayer’s marginal tax rate. Previously, certain shareholders, such as individuals were entitled to a discount of 50% for capital gains on shares held for greater than 12 months. However, as part of the 2012-2013 Federal Budget measures, the Australian Government announced changes to the application of the CGT discount for foreign resident individuals on taxable Australian assets, including shares. These changes became effective on 29 June 2013.

 

The effect of the change is to:

 

Retain access to the full CGT discount for discount capital gains of foreign resident individuals in respect of the increase in the value of a CGT asset that occurred before 9 May 2013; and

 

Remove the CGT discount for discount capital gains for foreign resident individuals that arise after 8 May 2013.

 

Foreign residents will still have access to a discount on discount capital gains accrued prior to 8 May 2013 provided they choose to obtain a market valuation for their assets as at that date.

 

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Net capital gains are calculated after reduction for capital losses, which may only be offset against capital gains.

 

Tax on Sales or other Dispositions of Shares - Shareholders Holding Shares on Revenue Account

 

Some non-Australian resident shareholders may hold shares on revenue rather than on capital account, for example, share traders.  These shareholders may have the gains made on the sale or other disposal of the shares included in their assessable income under the ordinary income provisions of the income tax law, if the gains are sourced in Australia.

 

Non-Australian resident shareholders assessable under these ordinary income provisions in respect of gains made on shares held on revenue account would be assessed for such gains at the Australian tax rates for non-Australian residents, which start at a marginal rate of 32.5% for non-Australian resident individuals.  Some relief from the Australian income tax may be available to such non-Australian resident shareholders under the Double Taxation Convention between the United States and Australia, for example, because the shareholder does not have a permanent establishment in Australia.

 

To the extent an amount would be included in a non-Australian resident shareholder’s assessable income under both the capital gains tax provisions and the ordinary income provisions, the capital gain amount would generally be reduced, so that the shareholder would not be subject to double tax on any part of the income gain or capital gain.

 

Dual Residency

 

If a shareholder were a resident of both Australia and the United States under those countries’ domestic taxation laws, that shareholder may be subject to tax as an Australian resident. If, however, the shareholder is determined to be a U.S. resident for the purposes of the Double Taxation Convention between the United States and Australia, the Australian tax applicable would be limited by the Double Taxation Convention. Shareholders should obtain specialist taxation advice in these circumstances.

 

Stamp Duty

 

A transfer of shares of a company listed on the ASX is not subject to Australian stamp duty except in some circumstances where one person, or associated persons, acquires 90% or more of the shares.

 

Australian Death Duty

 

Australia does not have estate or death duties. No capital gains tax liability is realized upon the inheritance of a deceased person’s shares. The disposal of inherited shares by beneficiaries, may, however, give rise to a capital gains tax liability.

 

Goods and Services Tax

 

The issue or transfer of shares will not incur Australian goods and services.

 

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

 

The following is a summary of certain material U.S. federal income tax consequences that generally apply to U.S. Holders (as defined below) who hold ADSs as capital assets. This summary is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations promulgated thereunder, judicial and administrative interpretations thereof, and the bilateral taxation convention between Australia and the United States, or the Tax Treaty, all as in effect on the date hereof and all of which are subject to change either prospectively or retroactively. This summary does not discuss all the tax consequences that may be relevant to an investment in ADSs by a U.S. Holder in light of such holder’s particular circumstances or to U.S. Holders subject to special rules, including broker-dealers, financial institutions, certain insurance companies, investors liable for alternative minimum tax, tax-exempt organizations, regulated investment companies, non-resident aliens of the U.S. or taxpayers whose functional currency is not the U.S. dollar, persons who hold the ADSs through partnerships or other pass-through entities, persons who acquired their ADSs through the exercise or cancellation of any employee stock options or otherwise as compensation for their services, investors that actually or constructively own 10% or more of our shares by vote or value, and investors holding ADSs as part of a straddle or appreciated financial position or as part of a hedging or conversion transaction.

 

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If a partnership or an entity treated as a partnership for U.S. federal income tax purposes owns ADSs, the U.S. federal income tax treatment of a partner in such a partnership will generally depend upon the status of the partner and the activities of the partnership. A partnership that owns ADSs and the partners in such partnership should consult their own tax advisors about the U.S. federal income tax consequences of holding and disposing of ADSs.

 

This summary does not address the effect of any U.S. federal taxation other than U.S. federal income taxation. In addition, this summary does not include any discussion of U.S. federal estate and gift tax, state, local or foreign taxation. You are urged to consult your tax advisors regarding the foreign and U.S. federal, state and local tax considerations of an investment in ADSs.

 

For purposes of this summary, the term “U.S. Holder” means an individual who is a citizen or, for U.S. federal income tax purposes, a resident of the United States, a corporation or other entity taxable as a corporation created or organized in or under the laws of the United States or any political subdivision thereof, an estate whose income is subject to U.S. federal income tax regardless of its source, or a trust if (a) a court within the United States is able to exercise primary supervision over administration of the trust, and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

 

For purposes of the discussion below, it is assumed that the representations contained in the deposit agreement governing the ADSs are true and that the obligations in the deposit agreement and any related agreement will be complied with in accordance with their terms.

 

Taxation of Dividends

 

For U.S. federal income tax purposes, U.S. Holders of ADSs will be treated as owning the underlying ordinary shares represented by the ADSs held by them. Subject to the passive foreign investment company, or PFIC rules discussed below, the gross amount of any distributions received with respect to the underlying ordinary shares represented by the ADSs, including the amount of any Australian taxes withheld therefrom, will constitute dividends for U.S. federal income tax purposes, to the extent of our current and accumulated earnings and profits, as determined under U.S. federal income tax principles. You will be required to include this amount of dividends in gross income as ordinary income. Distributions in excess of our earnings and profits will be treated as a non-taxable return of capital to the extent of your tax basis in the ADSs. Any amount in excess of your tax basis will be treated as gain from the sale of ADSs. See “Disposition of ADSs” below for the discussion on the taxation of capital gains. Dividends will not qualify for the dividends-received deduction generally available to corporations under Section 243 of the Code.

 

Dividends that we pay in Australian dollars, including the amount of any Australian taxes withheld therefrom, will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day such dividends are received. A U.S. Holder who receives payment in Australian dollars and converts Australian dollars into U.S. dollars at an exchange rate other than the rate in effect on such day will likely have a foreign currency exchange gain or loss, which would be treated as U.S.-source ordinary income or loss.

 

Subject to complex limitations, any Australian withholding tax imposed on our dividends will be a foreign income tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability (or, alternatively, for deduction against income in determining such tax liability). The limitations set forth in the Code include computational rules under which foreign tax credits allowable with respect to specific classes of income cannot exceed the U.S. federal income taxes otherwise payable with respect to each such class of income. Dividends generally will be treated as foreign-source passive category income or general category income for U.S. foreign tax credit purposes, depending upon the holder’s circumstances. A U.S. Holder will be denied a foreign tax credit with respect to Australian income tax withheld from dividends received with respect to the underlying ordinary shares represented by the ADSs to the extent such U.S. Holder has not held the ADSs for at least 16 days of the 31-day period beginning on the date that is 15 days before the ex-dividend date or to the extent such U.S. Holder is under an obligation to make related payments with respect to substantially similar or related property. Any days during which a U.S. Holder has substantially diminished its risk of loss on the ADSs are not counted toward meeting the 16-day holding period required by the statute. The rules relating to the determination of the foreign tax credit are complex. You should consult with your own tax advisors to determine whether and to what extent you would be entitled to this credit.

 

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Subject to certain limitations, “qualified dividend income” received by a non-corporate U.S. Holder will be subject to tax at a reduced maximum tax rate of 20 percent. Distributions taxable as dividends generally qualify for the 20 percent rate provided that either: (i) the issuer is entitled to benefits under the Tax Treaty or (ii) the ADSs are readily tradable on an established securities market in the United States and certain other requirements are met. We believe that we are entitled to benefits under the Tax Treaty and that the ADSs currently are readily tradable on an established securities market in the United States. However, no assurance can be given that the ADSs will remain readily tradable. Furthermore, the reduced rate does not apply to dividends received from PFICs. The amount of foreign tax credit is limited in the case of foreign qualified dividend income. U.S. Holders of ADSs should consult their own tax advisors regarding the effect of these rules in their particular circumstances.

 

Disposition of ADSs

 

If you sell or otherwise dispose of ADSs, you will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other disposition and your adjusted tax basis in the ADSs. Subject to the PFIC rules discussed below, such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if you have held the ADSs for more than one year at the time of the sale or other disposition. In general, any gain that you recognize on the sale or other disposition of ADSs will be U.S.-source for purposes of the foreign tax credit limitation; losses will generally be allocated against U.S.-source income. Deduction of capital losses is subject to certain limitations under the Code.

 

In the case of a cash basis U.S. Holder who receives Australian dollars in connection with the sale or disposition of ADSs, the amount realized will be based on the U.S. dollar value of the Australian dollars received with respect to the ADSs as determined on the settlement date of such exchange. A U.S. Holder who receives payment in Australian dollars and converts them into U.S. dollars at a conversion rate other than the rate in effect on the settlement date may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss.

 

An accrual basis U.S. Holder may elect the same treatment of foreign currency gain or loss required of cash basis taxpayers with respect to a sale or disposition of ADSs, provided that the election is applied consistently from year to year. Such election may not be changed without the consent of the Internal Revenue Service, or IRS. In the event that an accrual basis U.S. Holder does not elect to be treated as a cash basis taxpayer (pursuant to the Treasury regulations applicable to foreign currency transactions), such U.S. Holder may have a foreign currency gain or loss for U.S. federal income tax purposes because of differences between the U.S. dollar value of the Australian dollars received prevailing on the trade date and the settlement date. Any such currency gain or loss would be treated as ordinary income or loss and would be in addition to gain or loss, if any, recognized by such U.S. Holder on the sale or other disposition of such ADSs.

 

Passive Foreign Investment Companies

 

We believe that we likely are a PFIC for U.S. federal income tax purposes for some U.S. Holders of our ADSs and a controlled foreign corporation (CFC) to other U.S Holders of our ADSs. Our treatment as a PFIC could result in a reduction in the after-tax return to those U.S. Holders of our ADSs and may affect the value of the securities.

 

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For U.S. federal income tax purposes, we will be classified as a PFIC for any taxable year in which either (i) 75% or more of our gross income is passive income, or (ii) at least 50% of the average value of all of our assets for the taxable year produce or are held for the production of passive income. For this purpose, cash is considered to be an asset that produces passive income. Passive income generally includes dividends, interest, royalties, rents, annuities and the excess of gains over losses from the disposition of assets that produce passive income. As a result of our substantial cash position and the decline in the value of our stock, we believe that we became a PFIC during the taxable year ended June 30, 2005. We believe that we continued to be classified as a PFIC during the taxable year ended June 30, 2019 for some U.S Holders of our ADSs and may continue to be a PFIC for each of the subsequent fiscal years.

 

As a PFIC, our dividends (if any are paid) will not qualify for the reduced maximum tax rate, discussed above, and, unless you timely elect to “mark-to-market” your ADSs, as described below:

 

you will be required to allocate “excess distributions” or gain recognized upon the disposition of ADRs ratably over your holding period for the ADSs. An “excess distribution” is the amount by which distributions during a taxable year in respect of an ADS exceed 125% of the average annual distributions during the three preceding taxable years (or, if shorter, your holding period for the ADSs).

 

the amount allocated to each year during which we are considered a PFIC, other than the year of the distribution or disposition, will be subject to tax at the highest individual or corporate tax rate, as the case may be, in effect for that year and an interest charge will be imposed with respect to the resulting tax liability allocated to each such year,

 

the amount allocated to the current taxable year and any taxable year before we became a PFIC will be taxable as ordinary income in the current year, and

 

you will be required to file an annual return on IRS Form 8621.

 

The PFIC provisions discussed above apply to U.S. persons who directly or indirectly hold stock in a PFIC.

 

Generally, a U.S. person is considered an indirect shareholder of a PFIC if it is:

 

a direct or indirect owner of a pass-through entity, including a trust or estate, that is a direct or indirect shareholder of a PFIC,

 

a shareholder of a PFIC that is a shareholder of another PFIC, or

 

a 50%-or-more shareholder of a foreign corporation that is not a PFIC and that directly or indirectly owns stock of a PFIC.

 

An indirect shareholder may be taxed on a distribution paid to the direct owner of the PFIC and on a disposition of the stock indirectly owned. Indirect shareholders are strongly urged to consult their tax advisors regarding the application of these rules.

 

If we cease to be a PFIC in a future year, a U.S. Holder may avoid the continued application of the tax treatment described above by electing to be treated as if it sold its ADSs on the last day of the last taxable year in which we were a PFIC. Any gain would be recognized and subject to tax under the rules described above. Loss would not be not recognized. A U.S. Holder’s basis in its ADSs would be increased by the amount of gain, if any, recognized on the sale. Solely for purposes of the PFIC rules, a U.S. Holder would be required to treat its holding period for its ADSs as beginning on the day following the last day of the last taxable year in which we were a PFIC.

 

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If the ADSs are considered “marketable stock” and if you elect to “mark-to-market” your ADSs, you would not be subject to the rules described above. Instead, you will generally include in income any excess of the fair market value of the ADSs at the close of each tax year over your adjusted basis in the ADSs. If the fair market value of the ADSs has depreciated below your adjusted basis at the close of the tax year, you may generally deduct the excess of the adjusted basis of the ADSs over its fair market value at that time. However, such deductions generally would be limited to the net mark-to-market gains, if any, that you included in income with respect to such ADSs in prior years. Income recognized and deductions allowed under the mark-to-market provisions, as well as any gain or loss on the disposition of ADSs with respect to which the mark-to-market election is made, are treated as ordinary income or loss (except that loss is treated as capital loss to the extent the loss exceeds the net mark-to-market gains, if any, that a U.S. Holder included in income with respect to such ADSs in prior years). However, gain or loss from the disposition of ADSs (as to which a “mark-to-market” election was made) in a year in which we are no longer a PFIC will be capital gain or loss. Our ADSs should be considered “marketable stock” if they traded at least 15 days during each calendar quarter of the relevant calendar year in more than de minimis quantities.

 

A U.S. Holder of ADSs will not be able to avoid the tax consequences described above by electing to treat us as a qualified electing fund, or QEF, because we do not intend to prepare the information that U.S. Holders would need to make a QEF election.

 

Additional Tax on Investment Income

 

U.S. Holders that are individuals, estates, or trusts and whose income exceeds certain thresholds will be subject to a 3.8% Medicare contribution tax on net investment income, which will include dividends on and capital gains from the sale or other taxable disposition of ADSs, subject to certain limitations and exceptions.

 

Backup Withholding and Information Reporting

 

Payments in respect of ADSs may be subject to information reporting to the IRS and to U.S. backup withholding tax at a rate equal to the fourth lowest income tax rate applicable to individuals (which, under current law, is 24%). Backup withholding will not apply, however, if you (i) are a corporation or come within certain exempt categories and demonstrate the fact when so required or (ii) furnish a correct taxpayer identification number and make any other required certification.

 

Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a U.S. Holder’s U.S. tax liability. A U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS, which is generally an annual income tax return.

 

U.S. individuals who hold certain specified foreign financial assets, including stock in a foreign corporation, with values in excess of certain thresholds are required to file IRS Form 8938 with their U.S. federal income tax return. Such form requires disclosure of information concerning such foreign assets, including their value. Failure to file the form when required is subject to penalties. An exemption from reporting applies to foreign assets held through a U.S. financial institution, generally including a non-U.S. branch or subsidiary of a U.S. institution and a U.S. branch of a non-U.S. institution. Investors are encouraged to consult with their own tax advisors regarding the possible application of this disclosure requirement to their investment in our ADSs.

 

F.Dividends and Paying Agents

 

Not applicable.

 

G.Statement by Experts

 

Not applicable.

 

66

 

 

H.Documents on Display

 

We are subject to the reporting requirements of the Exchange Act, as applicable to “foreign private issuers” as defined in Rule 3b-4 thereunder. As a foreign private issuer, we are exempt from certain provisions of the Exchange Act. Accordingly, our proxy solicitations are not subject to the disclosure and procedural requirements of Regulation 14A under the Exchange Act, transactions in our equity securities by our officers and directors are exempt from reporting and the “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required to file periodic reports and financial statements as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we file with the Securities and Exchange Commission an annual report on Form 20-F containing financial statements that have been examined and reported on, with an opinion expressed by, an independent registered public accounting firm, and we submit reports to the Securities and Exchange Commission on Form 6-K containing (among other things) press releases and unaudited financial information for the first six months of each fiscal year. We post our annual report on Form 20-F on our website (www.alteritytherapeutics.com) promptly following the filing of our annual report with the Securities and Exchange Commission. The information on our website is not incorporated by reference into this annual report.

 

The documents concerning our company referred to in this annual report may also be inspected at our registered office located at Level 3, 62 Lygon Street, Carlton, Victoria, 3053, Australia.

 

I.Subsidiary Information

 

Not applicable.

 

ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We invest our excess cash and cash equivalents in interest-bearing accounts and term deposits with banks in Australia. Our management believes that the financial institutions that hold our investments are financially sound and accordingly, minimal credit risk exists with respect to these investments. Certain of our cash equivalents are subject to interest rate risk. Due to the short duration and conservative nature of these instruments, we do not believe that we have a material exposure to interest rate risk. Our major market risk is changes in foreign exchange rates as we had approximately A$9,727,401, A$6,310,430 and A$17,508,482 cash held in U.S. dollars, GBP and Euro as of June 30, 2019, 2018 and 2017, respectively. A hypothetical 8%, 11% and 13% adverse movement in end-of-period exchange rates for U.S. dollars, GBP and Euro, respectively, would reduce the cash balance at the end of each year by approximately A$ 822,900, A$50 and A$24, respectively.

 

We conduct our activities in mostly in Australia and the USA. We are required to make certain payments in U.S. dollars and other currencies, however we believe an adverse movement in end-of-period exchange rates would not have a material impact on our operating results. In the twelve months ended June 30, 2019, the Australian dollar depreciated against the U.S. dollar by 5.27%. In the financial years 2018 and 2017, the Australian dollar depreciated by 3.61% and 3% against the U.S. dollar, respectively. A hypothetical 8% adverse movement in the U.S. dollar, 11% adverse movement in the GBP and 13% adverse movement in the Euro exchange rates would increase the cost of our foreign currency payables by approximately A$105,262.

 

We do not currently utilize derivative financial instruments or other financial instruments subject to market risk.

 

67

 

 

ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

Fees and Charges Payable by ADS Holders

 

The table below summarizes the fees and charges that a holder of our ADSs may have to pay, directly or indirectly, to our depositary, The Bank of New York Mellon, or BNYM, pursuant to the Deposit Agreement, which was filed as Exhibit 2.1 to our Registration Statement on Form F-6 filed with the SEC on December 21, 2007, and the types of services and the amount of the fees or charges paid for such services. The disclosure under this heading “Fees and Charges Payable by ADS Holders” is subject to and qualified in its entirety by reference to the full text of the Deposit Agreement. The holder of an ADS may have to pay the following fees and charges to BNYM in connection with ownership of the ADS:

 

Persons Depositing or Withdrawing Shares Must Pay:

  For:
     
●     U.S.$3.00 (or less) per 100 ADSs (or portion of 100 ADSs)  

●  Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property

●  Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates

●     U.S.$0.03 (or less) per ADS   ●   Any cash distribution to you
●     A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs   ●  Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders
●     U.S.$1.50 (or less) per ADS   ●   Transfers, combination and split-up of ADSs
●     Expenses of the depositary  

●  Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)

●   Converting foreign currency to U.S. dollars

●     Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes   ●   As necessary
●     Any charges incurred by the depositary or its agents for servicing the deposited securities   ●   As necessary

  

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them.  The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees.  The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them.  The depositary may collect any of its fees by deduction from any cash distribution payable to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

 

From time to time, the depositary may make payments to us to reimburse and/or share revenue from the fees collected from ADS holders, or waive fees and expenses for services provided, generally relating to costs and expenses arising out of establishment and maintenance of the ADS program.  In performing its duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are affiliates of the depositary and that may earn or share fees or commissions.

 

Fees and Payments Made by the Depositary to the Company

 

We incurred expenses in relation to services for our annual general meeting and special general meeting of shareholders. For the year ended June 30, 2019, we paid BNYM a total of U.S.$ 33,676 (comprised of payments for the distribution and printing of meeting material and proxy vote tabulation). For the year ended June 30, 2018, we paid BNYM a total of U.S.$ 30,568 (comprised of payments for the distribution and printing of meeting material and proxy vote tabulation).

 

68

 

 

PART II

 

ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

Not applicable.

 

ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

Not applicable.

 

ITEM 15.Controls and Procedures

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our chief executive officer and chief financial officer to allow timely decisions regarding required disclosure. Our management, including our chief executive officer and chief financial officer, conducted an evaluation of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e), as of the end of the period covered by this Annual Report on Form 20-F. Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2019, our disclosure controls and procedures were effective.

 

Management's Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
   
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
   
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on that assessment, our management concluded that as of June 30, 2019, our internal control over financial reporting is effective.

 

69

 

 

Changes in Internal Control over Financial Reporting

 

During the year ended June 30, 2019, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 16.Reserved

 

ITEM 16A.Audit Committee Financial Expert

 

Our Board of Directors has determined that Mr. Brian Meltzer, an independent director, meets the definition of an audit committee financial expert, as defined by rules of the Securities and Exchange Commission. For a brief listing of Mr. Meltzer’s relevant experience, see Item 6.A. “Directors, Senior Management and Employees - Directors and Senior Management.”

 

ITEM 16B.Code Of Ethics

 

We have adopted a code of ethics that applies to all senior financial officers of our company, including our chief executive officer, chief financial officer, chief accounting officer or controller, or persons performing similar functions. The code of ethics is publicly available on our website at www.alteritytherapeutics.com. Written copies are available upon request. If we make any substantive amendment to the code of ethics or grant any waivers, including any implicit waiver, from a provision of the codes of ethics, we will disclose the nature of such amendment or waiver on our website.

 

ITEM 16C.Principal Accountant Fees And Services

 

Fees Paid to Independent Public Accountants

 

The following table sets forth, for each of the years indicated, the fees billed by PricewaterhouseCoopers, which has served as our principal independent registered public accounting firm since November 30, 2006.

 

   Year Ended June 30, 
Services Rendered  2019   2018 
Audit (1)  A$300,422   A$252,960 
           
Total   A$300,422   A$252,960 

 

(1)Audit fees consist of services that would normally be provided in connection with statutory and regulatory filings or engagements, including services that generally only the independent accountant can reasonably provide.

 

Pre-Approval Policies and Procedures

 

Our Audit Committee has adopted policies and procedures for the pre-approval of audit and non-audit services rendered by our independent registered public accounting firm. Pre-approval of an audit or non-audit service may be given as a general pre-approval, as part of the audit committee’s approval of the scope of the engagement of our independent registered public accounting firm, or on an individual basis. Any proposed services exceeding general pre-approved levels also requires specific pre-approval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to perform the prohibited non-audit functions defined in Section 201 of the Sarbanes-Oxley Act or the rules of the Securities and Exchange Commission, and also requires the audit committee to consider whether proposed services are compatible with the independence of the registered public accounting firm. All of the fees described above were pre-approved by our Audit Committee.

 

70

 

 

ITEM 16D.Exemptions From The Listing STANDARDS For Audit CommitteeS

 

Not applicable.

 

ITEM 16E.PurchaseS Of Equity Securities By The Issuer And AffiliateD Purchasers

 

Issuer Purchase of Equity Securities

 

Neither we, nor any affiliated purchaser of our company, has purchased any of our securities during the year ended June 30, 2019.

 

ITEM 16F.CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT

 

None.

 

ITEM 16G.CORPORATE GOVERNANCE

 

Under NASDAQ Stock Market Rule 5615(a)(3), foreign private issuers, such as our company, are permitted to follow certain home country (Australian) corporate governance practices instead of certain provisions of the NASDAQ Stock Market Rules. A foreign private issuer that elects to follow a home country practice instead of any NASDAQ rule must submit to NASDAQ, in advance, a written statement from an independent counsel in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws. We have submitted a notice to NASDAQ informing them of that we elect to follow home country practice instead of the following NASDAQ rules:

 

the Rule related to Audit Committee Composition rule 5605(c)(2)(A)): we may have an audit committee composed of two members instead of “at least three members”. We may not follow NASDAQ rules regarding independence of such members (as long as comply Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, subject to the exemptions provided in rule 10A-3(c)), and we may not have a financially sophisticated member as defined.

 

the Rule requiring maintaining a majority of independent directors (Rule 5605(b)(1))

 

the Rule requiring that our independent directors have regularly scheduled meetings at which only independent directors are present (Rule 56505(b)(2)

 

the Rule regarding independent director oversight of director nominations process for directors (Rule 5605(e)

 

the Rule regarding independent director oversight of executive officer compensation (Rule 5605(d)

 

the requirement to obtain shareholder approval for the establishment or amendment of certain equity based compensation plans (Rule 5635(c), an issuance that will result in a change of control of the company (Rule 5635(b), certain transactions other than a public offering involving issuances of a 20% or more interest in the company (Rule 5635(d) and certain acquisitions of the stock or assets of another company (Rule 5635(a)).

  

ITEM 16H.MINE SAFETY DISCLOSURE

 

Not applicable.

 

ITEM 17.FINANCIAL STATEMENTS

 

Our company has elected to furnish financial statements and related information specified in Item 18.

 

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ITEM 18.FINANCIAL STATEMENTS

  

Page
Index to Consolidated Financial Statements F-1
Report of Independent Registered Public Accounting Firm F-2
Consolidated Statements of Financial Position F-3
Consolidated Statements of Profit or Loss and Other Comprehensive Income F-4
Consolidated Statements of Cash Flow F-5
Consolidated Statements of Changes in Shareholders’ Equity F-6
Notes to Consolidated Financial Statements F-7

 

ITEM 19.EXHIBITS

 

Index to Exhibits.

 

        Incorporated by
Reference
 

Exhibit Number

  Exhibit Description   Form   Exhibit  

Filing Date/

Period End

Date

 
1   Constitution of Registrant.   20-F   1.1   6/30/09  
                   
2.1   Deposit Agreement dated March 23, 2001, as amended and restated as of December 21, 2007, among the Registrant, the Bank of New York, as Depositary, and owners and holders from time to time of ADRs issued thereunder, including the Form of American Depositary Receipts.   F-6 POS   1   12/21/07  
                   
2.2   Certificate of Registration on Change of Name.   F-3   4.2   5/13/19  
                   
4.1   License Agreement dated January 1, 2001, between the Registrant and The General Hospital Corporation.   20-F       5/29/02  
                   
4.2   Variation Agreement dated August 8, 2001, between the Registrant and The General Hospital Corporation, which amends the License Agreement dated January 1, 2001, between the parties.   20-F       5/29/02  
                   
4.3   Agreement to Provide Accounting, Administration, Corporate Advice and Company Secretarial Services dated February 23, 2000, between the Registrant and Malvern Administrative Services (now The CFO solution).   20-F       5/29/02  
                   
4.4   Second Amendment to Exclusive License Agreement dated January 1, 2001, between the Registrant and The General Hospital Corporation dated March 15, 2004.   20-F   4.6   6/30/04  
                   
4.5   Settlement Agreement dated July 28, 2004, among the Registrant, P.N. Gerolymatos S.A, or PNG, Mr. Gerolymatos, GHC, Professor Ashley Bush, Dr. Rudolph Tanzi and Dr. Robert Cherny and the ancillary agreements of even date therewith exhibited thereto, including the Patent Assignment and Settlement Agreement among the Registrant and PNG, Patent Rights Security Agreement among the Registrant and PNG and the Derivatives Agreement among the Registrant and PNG.   20-F   4.21   6/30/04  

 

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4.6   Prana Biotechnology Limited, 2018 American Depository Share (ADS) Option Plan.   6-K   Annexure  A to Item 1   11/3/04  
                   
4.7   Prana Biotechnology Limited, 2004 Employees’, Directors’ and Consultants’ Share and Option Plan.   6-K   Annexure B to Item 1   11/3/04  
                   
4.8   Sixth Research Funding and Intellectual Property Assignment Agreement dated November 7, 2014.   20-F   4.19   6/30/07  
                   
4.9   Employment Agreement dated September 21, 2007, among the Registrant and Mr. Kempler.   20-F   4.21   6/30/07  
                   
4.10   Placement Confirmation Letter dated September 8, 2009, between the Registrant and BAM Capital LLC.   20-F   4.25   6/30/07  
                   
4.11  

Securities Purchase Agreement between the Company and Life Biosciences LLC, dated December 21, 2018

  F-3   4.4   5/13/19  
                   
4.12   Ordinary Share Purchase Warrant (539,811,066 Warrant Shares), issue date of April 8, 2019   F-3  

4.5

  5/13/19  
                   
8.1*   List of Subsidiaries of the Registrant.              
                   
12.1*   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act, as amended.              
                   
12.2*   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act, as amended.              
                   
13.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.              
                   
13.2*   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.              
                   
15.1*   Consent of PricewaterhouseCoopers.              

 

 

*Filed herewith.

 

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ALTERITY THERAPEUTICS LIMITED (FORMERLY PRANA BIOTECHNOLOGY LIMITED)

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page Number
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Statements of Financial Position F-3
   
Consolidated Statements of Profit or Loss and Other Comprehensive Income F-4
   
Consolidated Cash Flow Statements F-5
   
Consolidated Statements of Changes in Shareholders’ Equity F-6
   
Notes to Consolidated Financial Statements F-7

 

F-1

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of Alterity Therapeutics Limited

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated statements of financial position of Alterity Therapeutics Limited (formerly known as Prana Biotechnology Limited) and its subsidiaries (the “Company”) as of June 30, 2019 and 2018, and the related consolidated statements of profit or loss and other comprehensive loss, of changes in shareholders’ equity, and of cash flows for each of the three years in the period ended June 30, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ PricewaterhouseCoopers

Melbourne, Australia

August 30, 2019

 

We have served as the Company's auditor since 2006.

 

F-2

 

 

ALTERITY THERAPEUTICS LIMITED

 

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in Australian dollars, except number of shares)

 

       June 30, 
   Notes   2019   2018 
Assets            
Current Assets            
Cash and cash equivalents        14,399,904    15,235,556 
Trade and other receivables   5    4,829,497    3,152,410 
Other current assets   6    631,769    266,625 
                
Total Current Assets        19,861,170    18,654,591 
                
Non-Current Assets               
Property and equipment, net of accumulated depreciation of A$329,824 and $299,817 respectively        48,748    71,422 
         -      
                
Total Non-Current Assets        48,748    71,422 
                
Total Assets        19,909,918    18,726,013 
                
Liabilities               
Current Liabilities               
Trade and other payables   7    2,718,174    2,055,247 
Provisions   8    601,995    588,693 
                
Total Current Liabilities        3,320,169    2,643,940 
                
Non-Current Liabilities               
Provisions   8    34,976    916 
                
Total Non-Current  Liabilities        34,976    916 
                
Total Liabilities        3,355,145    2,644,856 
         16,554,773    16,081,157 
Net Assets               
                
Equity               
2019: 860,837,432 fully paid ordinary shares. Nil options over fully paid ordinary shares 2018: 533,891,470 fully paid ordinary shares. Nil options over fully paid ordinary shares.   10    156,632,636    143,910,328 
Reserves   11    1,158,975    1,753,954 
Accumulated deficit during the development stage   12    (141,236,838)   (129,583,125)
                
Total Equity        16,554,773    16,081,157 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-3

 

 

ALTERITY THERAPEUTICS LIMITED

 

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE LOSS

(in Australian dollars, except number of shares)

 

       Years ended June 30, 
   Notes   2019   2018   2017 
                 
Interest income   2    108,538    201,174    132,396 
Other income   2    4,951,167    3,125,775    3,022,673 
Intellectual property expenses        (322,097)   (224,580)   (241,892)
General and administration expenses   3    (4,308,352)   (4,341,058)   (3,968,630)
Research and development expenses   3    (12,983,185)   (6,698,016)